SEP IRA

What is a SEP IRA?

A  Simplified Employee Pension (SEP, or SEP IRA) enables employers to make contributions to retirement accounts for both themselves and employees as outlined by the Internal Revenue Service (IRS). This type of retirement account is an alternate form of a traditional IRA. As per the IRS requirements, “all contributions must go to a traditional IRA, and employees are responsible for making investment decisions about their SEP-IRA accounts”. Only the employer makes contributions to these retirement accounts, and employees are completely vested in all funds within their respective SEP IRA.

Every eligible employee has an individual SEP IRA set-up for them. The IRS defines an “eligible employee” as an individual who has made at least $600 from the employer during the calendar year, is at least age 21, and been employed by the employer “at least 3 of the last 5 years”. 

Because SEP IRAs are an alternate form of traditional IRAs, these retirement vehicles have identical investment options. In addition, the same rules for  Required Minimum Distributions (RMDs) are applicable. Based upon the Setting Every Community Up for Retirement Enhancement (SECURE) Act,  if an individual turned 70 years old on July 1, 2019, or later, then withdrawals from a SEP IRA are not mandatory until the individual turns 72.

 

SEP IRA Rollover Rules & Limitations

Funds from a SEP IRA can be “rolled over” or transferred into another type of retirement account within a period of 60 days, as per IRS rules. Additionally, funds can only be rolled over once in a 365-day period from a specific IRA into another IRA. If you already own a SEP IRA, you can easily put that money into a self-directed IRA, like a Precious Metals IRA.

Essentially there are two ways to move money from your SEP IRA into another retirement account: either a rollover, or a custodian-to-custodian transfer. If you elect to take distributions prior to turning 59 ½ years old unless you meet the criteria for an exception, funds will be subject to a 10% penalty.

The easiest method of moving funds from a SEP IRA into a self-directed IRA like a Precious Metals IRA is via a custodian-to-custodian transfer. Simply open a self-directed IRA with a reputable, IRS-approved IRA custodian. This custodian then directly transfers the funds from the existing SEP IRA into the new IRA. Thereafter, said custodian will invest the funds as per instructions that you have provided. With a custodian-to-custodian transfer, you never touch the funds and the money transferred is not subject to any tax penalties.

 

SEP IRA vs. Other Retirement Accounts

The table below compares the various types of retirement plans:

Plan TypeSponsorshipRoth Option?Allows Precious Metals Stocks?Allows Precious Metals Bullion?Allows Other Alternative Investments
Precious Metals IRAIndividualYesYesYesYes
Traditional IRAIndividualYesYesNoNo
401(k)EmployerYesMaybeNoNo
SEP IRASelf-employed or Business ownerYesYesMaybeMaybe
Solo 401(k)Self-employedYesYesYesMaybe
Simple IRAEmployerYesYesMaybeMaybe
Money Purchase PlanEmployerNoMaybeNoNo
Profit Sharing PlanEmployerNoMaybeNoNo
457(b)Government or Non-governmental Tax-exempt Employer YesMaybeNoNo
SARSEPEmployerNoYesMaybeMaybe
Keogh PlanSelf-Employed or Unincorporated Employer NoMaybeNoNo
Thrift Savings Plan (TSP)Government or Armed Services EmployerYesNoNoNo
ESOPEmployerYesMaybeNoNo
AnnuityIndividualNoMaybeNoNo

Maybe” denotes where precious metals investment options are dependent upon the retirement vehicle provider.

 

SEP IRA Contribution Limits

It is important to note that only the employer contributes to a SEP IRA. The Internal Revenue Agency (IRS) has specific contribution limits for a SEP IRA.  The IRS regulations stipulate that employer contribution limits “cannot exceed the lesser of $57,000 for 2020, or 25% of the employee’s compensation”.

Additionally, as per the IRS rules, SEP IRAs do not allow for either catch-up contributions or elective salary deferrals.

 

SEP IRA Calculator

A SEP IRA can prove to be an excellent retirement investment choice because it is a tax-advantaged investment vehicle. There are numerous components that contribute to the amount of savings you set aside for retirement. Use this SEP-IRA Calculator to determine how much you could potentially save.

 

SEP IRA Providers

Fidelity SEP IRA

Fidelity has consistently been one of the highest-rated multinational financial services companies in the industry. A Fidelity SEP IRA offers tax-deferred growth and tax-deductible contributions with an array of investment options. You will also have access to a wide range of Fidelity research and investment tools with this retirement account.

Vanguard SEP IRA

A Vanguard SEP IRA is a popular investment choice for business owners or those who are self-employed. The company offers over 100 Vanguard mutual funds with this type of plan, including index funds, as well as Vanguard ETFs. Moreover, numerous mutual funds and ETFs are available from other companies, stocks, bonds, and CDs.

Charles Schwab SEP IRA

A Charles Schwab SEP IRA is another popular provider of this type of retirement vehicle. A SEP with this company involves no fees to open the account, nor for its maintenance. In addition, Schwab has no required minimum deposit and does not charge for commission.

 

SEP IRA FAQs

The deadline for employers to contribute to a SEP IRA is usually April 15. However, for 2020 the IRS has extended the SEP IRA contribution deadline to July 15, 2020.

First, you must meet the criteria of this type of retirement plan: be a business owner or a self-employed individual. Next, choose a reputable SEP IRA provider who will then walk you through the steps of setting up this type of retirement plan.

The Internal Revenue Agency (IRS) has specific contribution limits for a SEP IRA. For 2020, the IRS regulations stipulate that “employer contribution limits cannot exceed the lesser of $57,000 or 25% of the employee's compensation”.

A Solo 401(k) permits a business owner (and his or her spouse) to participate in a qualified defined contribution plan. No additional employees can be hired by the small business to be eligible for this type of retirement vehicle.

Conversely, a Simplified Employee Pension (SEP, or SEP IRA) enables employers to make contributions to retirement accounts for both themselves and employees as outlined by the Internal Revenue Service (IRS). This type of retirement account is an alternate form of a traditional IRA and has identical investment options. In addition, the same rules for Required Minimum Distributions (RMDs) are applicable. Based upon the Setting Every Community Up for Retirement Enhancement (SECURE) Act, if an individual turned 70 years old on July 1, 2019, or later, then withdrawals from a SEP IRA are not mandatory until the individual turns 72.

A SEP IRA is designed for either self-employed individuals or business owners to make contributions for both themselves and employees to retirement accounts. Only the employer makes contributions to these retirement accounts, and employees are completely vested in all funds within their respective SEP IRA.

A SIMPLE IRA (Savings Incentive Match Plan for Employees) provides small businesses with 100 or fewer employees, the ability to offer retirement plans. Both the employer and employees can make contributions to this type of retirement account. Likewise, with a SEP, an employee is completely vested in all funds within their respective SIMPLE IRA.

A SEP IRA enables employers to make contributions to retirement accounts for both themselves and employees as outlined by the Internal Revenue Service (IRS). This type of retirement account is an alternate form of a traditional IRA and has identical investment options. In addition, the same rules for Required Minimum Distributions (RMDs) are applicable. Based upon the Setting Every Community Up for Retirement Enhancement (SECURE) Act, if an individual turned 70 years old on July 1, 2019, or later, then withdrawals from a SEP IRA are not mandatory until the individual turns 72.

A 401(k) is categorized as a “defined contribution plan”, where the employee funds the account with paycheck deductions prior to taxation. Additionally, with some 401(k) plans, the employer will make proportionally matched contributions to the account based on elective deferrals of the employees.

The main advantage of 401(k) plans is the potential for contributions to be proportionally matched by the employer, which are not taxed and allow the participant to exceed the contribution limits outlined by the Internal Revenue Agency (IRS). However, this type of retirement vehicle is limited by the investment options permitted within the account. As per the IRS regulations, funds from a 401(k) cannot be used to invest in numerous alternative assets, such as precious metals and real estate.

Ultimately, the investment options available with a SEP IRA are dependent upon your IRA custodian. However, these types of investments available to you with a SEP IRA:

• Mutual funds
• Exchange-Traded Funds (ETFs)
• stocks
• bonds
• Options
• Certificates of Deposit (CDs)
• Real Estate
• Precious Metals Bullion

Unlike a traditional IRA, some SEP IRAs can also be used to invest in alternative investments like IRS-approved precious metals bullion and real estate.

Investing in precious metals such as gold is an excellent hedge to protect your investment portfolio against economic uncertainties and inflation. A diversification strategy that includes gold (or other precious metals) not only protects your portfolio against market turmoil, but gold also provides significant growth potential. A simple method for diversification is to open a self-directed IRA.

The Internal Revenue Agency (IRS) has stringent regulations on what types of gold and silver are permitted in an IRA. Essentially, the criteria include the purity levels of the gold or silver, and where it was minted. It is crucial to understand that only specific bullion coins and bars which meet IRA-approved purity levels are permitted in this type of retirement vehicle. Some examples of bullion coins that are approved by the IRS for investing in an IRA include American Eagles, Canadian Maple Leafs, and Austrian Philharmonic.

It is imperative to understand that the IRS does NOT permit things like collectible coins or numismatics as an IRA account. Any reputable IRA company will only recommend IRA-approved gold and silver bullion coins and bars. Be wary of any Gold IRA company that attempts to push collectible coins or numismatics as an investment option for an IRA - their intentions will be dubious.

A Gold IRA company is a firm that acts as a custodian for the entirety of the process for setting up Gold IRAs (in addition to other Precious Metals IRAs). The process entails setting up the account, an IRA rollover or custodian-to-custodian transfer, purchasing IRA-approved precious metals, and storing precious metals in an accredited IRS-approved depository. Usually, Gold IRA companies have established relationships with traditional IRA custodians, IRS-approved accredited depositories, and precious metal dealers, which makes the process seamless for clients.

It is crucial to understand that under federal law if you open a self-directed IRA (including a Precious Metals IRA), you must have a custodian.

This is solely dependent on your personal preferences. What Gold IRA company you choose is contingent on what components are most important to you, whether it is storage options, ratings, or client services, amongst other factors. Once you have decided on your personal preferences, select numerous companies, then contact them to receive more information pertaining to both the respective firm and products offered.

Sometimes any movement of money from one retirement plan to another is often referred to as a “rollover”. However, the IRS has specific definitions for a rollover and a transfer. As per the IRS definition, a rollover occurs when the funds being moved are paid to you directly, and you then deposit the money into the other retirement vehicle.

The IRS has strict regulations and rules pertaining to an IRA Rollover. The guidelines outlined by the IRS for an IRA rollover include having 60 days to deposit the money you have received, in the custodian of your choice. If you are under 59 ½, failing to do so within the 60-day timeframe from initially receiving the funds, will result in a 10% early-withdrawal penalty tax being levied on said funds.

If you receive distributions from a retirement plan and you rollover into another retirement plan, as per the IRS rules there will be no taxation on those funds. In addition, funds can only be rolled over once in a 365-day period from a specific IRA.

In a trustee-to-trustee transfer (as the IRS has deemed it) you request that the original IRA custodian transfers the funds to the new IRA custodian. With a trustee-to-trustee transfer, you never touch the funds and the money transferred is not subject to taxation.