IRA Investing - The Different Types of Account for Business Owners


A SEP IRA is a type of traditional IRA for self-employed individuals or small business owners. Any business owner with one or more employees, or anyone with freelance income, can open a SEP IRA.

Whether you are a small business owner or you work at a small business, you can have a SEP IRA account.

A SEP IRA is a type of IRA offered under a Simplified Employee Pension (SEP) plan. SEP plans provide business owners with a simple way to contribute toward their employees’ retirement savings as well as their own retirement savings.

A SEP plan allows for contributions to be made to an Individual Retirement Account or Annuity (IRA) set up for each plan participant (a SEP-IRA). Following the same investment, distribution, and rollover rules as traditional IRAs, a SEP-IRA account is a traditional IRA.

Set up by Employer or Business Owner

Your SEP IRA set up as a military veteran must be done in accordance with your employer or by your businesses guidelines by adopting Form 5305-SEP with a written agreement that includes the name of the employer, the requirements for employee participation, the signature of a responsible official and a definite allocation formula.

As Much as 25% Earnings Can Be Put Aside

With a SEP plan, you can put aside cash for your retirement without the start-up and operating costs of a conventional retirement plan. You can put aside as much as 25 percent of your pay.

The contributions an employer make to each employee's SEP-IRA each year cannot exceed the lesser of: 25% of compensation or $52,000 for 2014 and $53,000 for 2015. This is subject to annual cost-of-living adjustments for later years.

When you set up your SEP, you cannot use another retirement plan. Only an employer or business owner can contribute. As an employee, you would have full ownership of your SEP IRA money at all times.

SEP IRA accounts are easy to set up and operate and have low administrative costs. They also have flexible annual contributions, which can be great if cash flow is an issue.

The employer must contribute equally for all eligible employees. Only employer contributions are allowed and total contributions to each employee’s SEP-IRA are limited.

Employers do not have filing requirements. As a beneficiary, you cannot take out a loan or use assets as collateral. You can withdraw funds early but you will be subject to a 10% additional tax if under the age of 59 and 1/2 years.

When you set up your SEP IRA account with a bank, insurance company or other qualified financial institution, all of your SEP contributions must go to traditional IRAs. As an employee, you are responsible for making investment decisions about your individual SEP-IRA account.

You will receive a statement when you set up your account and also once a year. Your financial institution must provide an explanation of any fees and commissions it imposes on SEP assets withdrawn before the expiration of a specified period of time.

At Capital Wealth Planning, we use Charles Schwab for IRA retirement services. To open an IRA or to get additional information about ther Chalres Schwab platform, fill out the form below.