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Self Directed IRA Articles

The Self-Directed Simple Employee Pension Plan (SEP IRA)

Posted by Jack Callahan on Nov 4, 2015 10:13:22 AM

self-directed SEP IRA for employeesSimple employee pension plans, or SEP IRAs, are plans geared for individuals who are self-employed, partners, and owners of corporations. These plans are beneficial in that they provide a low-cost and simple retirement savings option for people in these positions. These plans offer higher contribution limits, are less complicated than other account structures, and employers can easily make contributions to employees’ plans without incurring heavy expense in doing so. SEP IRAs can also be self-directed.

Self-directed retirement accounts are growing in popularity among those who want to control their own retirement funds and investing decisions. They offer individuals the ability to choose their own assets and the possibility to achieve diversified income growth for retirement.

Access to an asset class frequently referred to as alternative investments makes self-direction even more attractive for savvy investors. Instead of relying on the somewhat slow growth of returns that mutual funds and CDs offer, or weathering the typical Wall Street storms, self-directed account owners can invest in assets they know and understand.

Alternative investments include:

  • Real estate
  • Private lending
  • Oil and gas
  • Raw and foreign land
  • LLCs
  • Precious metals
  • Private equity and crowdfunding options
  • Timberland
  • Livestock
  • and much more

The self-directed SEP IRA owner enjoys these diverse investing vehicles, which can have the potential to garner greater returns in a shorter amount of time than traditional methods often present.

Here’s how self-directed SEP IRAs work:

  • Employers and employees (if any) can contribute to individual, traditional IRAs owned by the employees, at institutions of their choice. (Please note: A self-employed individual is considered an employee as well as an employer, making contributions limits somewhat complicated. Seek appropriate counsel when determining contributions if you are self-employed.)
  • To fund the plan, simply make annual contributions, rollover funds from an existing employer-sponsored plan, or transfer funds from another IRA.
  • All employees must receive the same benefits, which can be up to 25 percent of income earned. Bonus: this percentage can change every year.
  • Employees are taxed at ordinary income tax rates when distributions are taken after the participant reaches the age of 59 1/2 years.

Additionally, yearly contributions are not required. However, the fact that contribution limits to these plans are higher than the typical retirement account allows means plan owners can attain immediate capital in their plans to acquire desirable assets that build tax-sheltered retirement income.

For more information about self-directed SEP IRAs, including contribution limits, please contact us.


Topics: Retirement Planning, Self-Directed IRA, SEP IRA