Maximize your retirement savings with SEP IRAs. Learn contribution limits, tax benefits and strategies for self-employed individuals.
Maximizing Your SEP IRA: Strategies for Self-Employed and Small Business Owners
As a successful self-employed individual or small business owner, you understand the importance of maximizing every opportunity. When it comes to retirement savings, a SEP IRA (Simplified Employee Pension Individual Retirement Arrangement) can be a powerful tool in your financial toolkit. Let's explore how you may potentially make the most of this retirement vehicle.
Key Points About SEP IRAs
Before diving into maximization strategies, let's refresh our understanding of SEP IRAs:
- A SEP IRA is designed for self-employed individuals and small business owners.
- It offers higher contribution limits compared to traditional IRAs.
- Contributions are made by the employer (you) and are tax-deductible for your business.
- Funds grow tax-deferred until withdrawal.
Strategies to Maximize Your SEP IRA
Maximizing your SEP IRA is about more than just contributing the maximum annual amount allowed. It involves strategic planning, smart investment choices, and a thorough understanding of the rules and benefits associated with these unique retirement accounts. By implementing the following strategies, you can make the most of your SEP IRA, while potentially reducing your current tax liability.
Maximize Your Contributions
The key to maximizing your SEP IRA is to contribute as much as possible. As of 2025, you can contribute up to 25% of your net self-employment income or $70,000, whichever is less. This is a significant increase from previous years, allowing you to save even more for retirement. Tip: Work with your CPA and financial advisor to determine the optimal contribution amount based on your business's profitability and your personal financial goals.
Leverage the Flexibility
One of the SEP IRA's greatest strengths is its flexibility. Unlike some other retirement plans, you can adjust your contributions year-to-year based on your business's performance. Strategy: In highly profitable years, maximize your contributions to potentially reduce your tax liability and boost your retirement savings. In leaner years, you can reduce your contributions without penalty.
Time Your Contributions Wisely
You have until your tax filing deadline, including extensions, to make contributions based on the previous year’s income. Tip: If you're unsure about your final earnings for the year, you can wait until you've completed your tax calculations to determine and make your SEP IRA contribution. Your CPA and financial advisor can help you with this, too!
Diversify Your Investments
SEP IRAs offer a wide range of investment options. At EP Wealth, we manage SEP IRAs as part of your total diversified portfolio. You can invest in mutual funds, ETFs, stocks, bonds, and money market funds, just like with other retirement accounts. Strategy: Spread your investments across different asset classes, sectors, and geographical regions to balance risk and reward.
Consider a SEP IRA Alongside Other Retirement Accounts
A SEP IRA doesn't prevent you from having other retirement accounts. You can contribute to a SEP IRA in addition to a 401(k) through regular employment, as well as a traditional or Roth IRA (subject to income limits).
Understand and Plan for Required Minimum Distributions (RMDs)
Like traditional IRAs, SEP IRAs are subject to RMDs starting at age 73. Tip: Work with your financial advisors to plan your withdrawals strategically to minimize tax impact in retirement. You may consider converting pretax funds to a Roth IRA in lower earning years to potentially reduce future RMDs.
Leverage Tax Benefits
SEP IRA contributions are tax-deductible for your business in the year they are made. This can significantly reduce your taxable income. Tip: Consult with your financial advisor or CPA to optimize the tax benefits of your SEP IRA contributions.
Managing Taxes in Retirement
To potentially minimize taxes when withdrawing from your SEP IRA in retirement:
- Plan Your Withdrawal Strategy: Work with your financial advisor to create a withdrawal strategy that may help minimize your tax liability.
- Consider Roth Conversions: In lower-income years, especially between retirement and when you start taking Social Security or RMDs, consider converting some of your SEP IRA funds to a Roth IRA. This may allow you to pay taxes at a lower rate and enjoy tax-free withdrawals in the future.
- Coordinate with Other Income Sources: Plan your SEP IRA withdrawals in conjunction with other income sources to manage your tax bracket.
SEP IRA vs. Individual 401(k)
While SEP IRAs are excellent retirement vehicles, it's worth comparing them to Individual 401(k)s, also known as Solo 401(k)s or i401(k)s:
- Contribution Limits: Individual 401(k)s allow for potentially higher contributions. In 2025, you can contribute up to $23,500 as an employee, plus an additional 25% of net income as an employer contribution, up to a total of $70,000. If you're over 50, you can make an additional $8,000 catch-up contribution, bringing the total to $77,500.
- Flexibility: Individual 401(k)s offer more flexibility in contribution types, allowing both employee and employer contributions.
- Catch-up Contributions: Unlike SEP IRAs, Individual 401(k)s allow catch-up contributions for those over 50.
- Loan Provisions: Many Individual 401(k) plans allow you to borrow against your account balance, a feature not available with SEP IRAs.
Is Maximizing a SEP IRA Right for You?
A SEP IRA can be an excellent choice if:
- You're self-employed or own a small business with few or no employees.
- You want a simple, low-maintenance retirement plan with high contribution limits.
- You have a variable income and appreciate the flexibility to adjust contributions annually.
However, if you're looking for even higher contribution limits or additional features like catch-up contributions, an Individual 401(k) might be a better fit.
Next Steps
Maximizing your SEP IRA is just one piece of a comprehensive retirement strategy to plan for a secure financial future. At EP Wealth, we're here to help you navigate your retirement planning options with the goal of building a secure financial future tailored to your unique situation.
Schedule a consultation with one of our financial advisors to discuss how you can maximize your SEP IRA or explore other retirement savings options like Individual 401(k)s. Let's work together on a plan so your hard-earned success translates into a comfortable and prosperous retirement.
DISCLOSURES
- EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability
- Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings/checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
- Hiring a qualified advisor and/or financial planner does not guarantee investment success, and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct or implied results or projections being represented here will be met or sustained.
- The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or warrantee that the services offered by EP Wealth Advisors, LLC will satisfy your specific financial services requirements. Services offered by other advisors may align more to your specific needs.
- The information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
- The content of this report is believed to be accurate as of the date of publication and cannot and does not accurately forecast future economic, market, or financial conditions; including changes to retirement benefits, social security, and/or Medicare. For this reason, any subsequent changes, and/or that occur after the publication of this presentation may cause the analysis encompassed herein to become inaccurate. Any references to future market or economic forecasts are based on hypothetical assumptions that may never come to pass.
- Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.