What you should know about a SEP IRA

A SEP IRA can be a great option for investors that are self-employed or run their own business. Think of it as an IRA on steroids for small business owners. SEPs are a low-cost retirement option that allows owners to make SEP IRA contributions for themselves and their employees to a Traditional IRA. With no or very low start-up and operating costs compared to other types of employer retirement plans, the SEP IRA allows annual contributions up to the smaller of 25% of the owner’s (or their employee’s) compensation or the annual maximum set forth by the IRS each year, which is $55,000 for 2018.

Who can participate?

Any business owner that is structured as an individual LLC, partnership, S or C corp can establish a SEP IRA. SEPs are a common choice for owners that have a small family business or a limited number of employees they wish to help save for retirement. However, there are some prerequisites for participation in a SEP and the owner can select the stricter restriction by requiring employees:

•  Be at least 18 to 21 years old,
•  Work for the company in at least one, two or three of the last five years, and
•  Have received at least $600 in compensation during the year.

Benefits of a SEP IRA

One of the key advantages of a SEP IRA over a traditional or Roth IRA is the elevated contribution limit. The SEP IRA allows for contributions up to 25% of the business owner’s (or employee’s) compensation, up to $55,000 for 2018.

SEP IRAs are also appealing because they are simple and inexpensive to set up, and the employer contributions are tax deductible. The SEP IRA offers business owners an easy retirement savings option that can benefit the owner and serves as a perk when it comes to retaining talent.

More importantly, it offers small business owners flexibility from year to year when making SEP contributions for themselves (and their employees). For example, if the business has a tough year financially, the owner can choose not to contribute for that year. Conversely, if the business has a great year, the owner can contribute to the SEP plan up to the maximum allowed SEP contribution limit.

SEP contributions can easily be increased, decreased or suspended depending on the business cash flow needs. Also, the SEP contribution is made by the employer, but employees may contribute their annual IRA contribution, up to the maximum of $5,500 if under age 50, or $6,500 if age 50 or over.

The timing of making a SEP IRA contribution is also flexible for the employer since SEPs can be opened and funded after the year ends, up to the owner’s filing deadline including extension. If the owner files an extension for the 2018 tax year, you could technically wait and open the SEP IRA or make the contribution up to six months after the filing deadline. Essentially, the business owner can wait until the year ends and see what the numbers look like before deciding what or whether to contribute.

When you couple a SEP IRA with a self-directed IRA, it can offer the business owner (and their employees) a wide variety of investment options that stretch beyond traditional stocks, bonds and mutual funds. Consequently, the owner may choose to have a self-directed IRA for their SEP IRA and let employees open their SEP IRAs with a traditional brokerage firm.

More control with STRATA

Once a SEP IRA is established with STRATA, the self-directed IRA allows you to invest in alternative assets such as real estate, private stock, a venture capital or private equity fund, precious metals and much more. Taking control of your investment decisions and diversifying your retirement portfolio with alternative assets can be a hedge strategy to guard against the unpredictable world of Wall Street.

Before opening a SEP IRA, it’s best to discuss your retirement account options with your tax professional or financial advisor to ensure it should be part of your retirement plan goals.


Founded in 2008, STRATA Trust Company has built a reputation delivering streamlined and straightforward custody. Our service-driven team has helped thousands of investors and investment professionals unlock opportunities in self-directed retirement accounts across a wide range of alternative investments. Formerly known as Self Directed IRA Services, Inc., STRATA has strategically realigned to support a broad range of investment professional partners in growing their IRA asset base – always with an eye on the future.

With offices in Austin and Waco, Texas, STRATA operates as a Texas-chartered trust company with direct oversight by the Texas Department of Banking. Led by a seasoned  team with over 350 years of collective experience, 35,000+ investors empowered and over $1.8 billion in assets under custody, our customers experience a clear difference in our approach to IRA custody.