How Does a SEP IRA Work?

    Like a traditional IRA, SEP IRA funds are tax-deferred until retirement, when distributions become taxable income. Contributions are also tax-deductible. 

    SEP IRAs can be combined with a traditional IRA or Roth IRA and don’t require annual contributions. This flexibility may make them especially appealing to small-business owners who wear many hats and want a low-maintenance retirement plan.  

    SEP IRA Contribution Limits

    There are SEP IRA contribution limits. For 2024, you can contribute up to $69,000 or 25% of your annual compensation—up to $345,000. A minimum distribution is also required for a SEP IRA. As of 2023, you must begin taking distributions at age 73. 

    While other retirement plans allow catch-up contributions for workers aged 50 and older, this option is not available with SEP IRAs.  

    Easy to Set Up and Administer

    SEP IRAs can be relatively simple to set up and administer. You can obtain the proper paperwork from your account provider or consult your EP Wealth retirement advisor for assistance. If you are an employer, you must create separate SEP IRAs for each employee and provide the required information about the plan as well. 

    After opening your account, you can choose from your provider's investments. Typically, these include stocks, bonds, and mutual funds. As your retirement planning professional, we guide you on how to fund your SEP IRA based on your current age, planned retirement age, and risk tolerance, diversifying your investments to reflect your individual goals.   

    Who Is Eligible For a SEP?

    To be eligible to participate in a SEP IRA, an employee must:

    • Be 21 or older
    • Have earned a minimum of $750 in 2024
    • Have worked for the company for at least three of the previous five years 

    Participating employees own and manage their accounts. Although any size business can establish a SEP IRA, they are ideal for self-employed individuals and business owners with no or few employees. 

    As a business owner, you must contribute on behalf of all eligible participants in the plan, and those contributions must be an equal percentage of your own personal contributions. You should consider this expense if you are hoping to grow your business. Larger employers may want to explore alternatives to SEP IRAs. 

    If you have questions about SEP IRAs and if they make sense for your personal or professional retirement planning needs, call or connect with an EP Wealth financial advisor near you. 

    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.  
    • All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's portfolio. The risk of loss can never be eliminated even if working with a professional. 
    • 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 information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors.  Before making any decision or taking any action, you should consult with a professional tax advisor who has been provided with all pertinent facts relevant to your situation. EP Wealth Advisors is not in the business of providing legal or tax advice. Please consult with a CPA, tax professional, and/or attorney regarding your specific situation.

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