Millions of self-employed Americans lack access to a conventional workplace retirement plan like a 401(k). While they can make contributions to other retirement accounts like traditional and Roth IRAs, the contribution limits on these accounts can make it difficult for self-employed workers to achieve their retirement goals. That’s where SEP IRAs come in.
Here’s what you need to know about SEP IRAs and the best places to open a SEP IRA account in 2023.
What is a SEP IRA?
A SEP IRA is a Simplified Employee Pension Individual Retirement Account and caters to workers who are self-employed or own their own business. The SEP IRA gives those workers access to a tax-advantaged retirement plan similar to a 401(k), but is less costly and simpler to set up. Here are some of the basics of SEP IRAs:
Employers can make tax-deductible or after-tax contributions to SEP IRAs
The lesser of $66,000 or 25 percent of your income can be contributed for 2023
Contribution percentages must be equal for all employees
Can be great for cyclical businesses where earnings can change significantly from year to year. You don’t have to contribute to the SEP IRA every year.
Catch-up contributions aren’t allowed for those age 50 and older as they are for traditional and Roth IRAs.
Charles Schwab is one of the best online brokers and is a great choice when you’re looking for a place to open a SEP IRA. You’ll be able to open a SEP IRA with no opening or maintenance fees and have access to thousands of low-cost funds to invest in. Schwab also offers commission-free trades on stocks and ETFs and has top-notch customer service in case you have questions about your account now or in the future.
A great fit for: Those looking for a low-cost SEP IRA with access to a variety of different investment options.
Fidelity Investments
Fidelity is another great option for opening a SEP IRA. You won’t pay opening, closing or annual fees related to your SEP IRA and will also get commission-free trades on stocks and ETFs. Fidelity customers will be able to trade a variety of different investment products in their accounts including stocks, bonds, ETFs, mutual funds and more. You’ll also have access to one of the best research offerings in the industry while getting 24/7 customer support, so you shouldn’t have any issues getting questions answered.
A great fit for: Those looking for a low-cost SEP IRA with access to a variety of different investment options.
Interactive Brokers
Interactive Brokers is often associated with active traders, but there are plenty of features that investors of all kinds can benefit from at the broker. You can access commission-free trading on stocks and ETFs and won’t have to worry about transfer-out fees, which are common at other brokers. Perhaps the greatest feature for IRA investors is Interactive Brokers’ offering of roughly 18,000 no-transaction fee mutual funds, among the best in the industry. Of course you can also access the broker’s low margin rates, but beware of the risks of margin trading before you get started.
A great fit for: Investors looking for the largest offering of no-transaction fee mutual funds and those looking for a more professional trading experience.
E-Trade
E-Trade is another top choice for opening a SEP IRA. You’ll get industry-standard features such as commission-free stock and ETF trades, but you also won’t pay fees to trade mutual funds, which makes E-Trade one of the best brokers for mutual fund trading. Its trading platform is also top-notch and you’ll have access to one of the best research and education offerings in the industry. Customer support is available 24/7 via email, phone or chat.
A great fit for: Investors looking for commission-free mutual fund trading along with stocks and ETFs.
Merrill Edge
Merrill Edge is another broker that allows you to open a SEP IRA for free and won’t charge annual maintenance fees either. You’ll be able to trade stocks and ETFs commission-free and have access to hundreds of no-transaction fee mutual funds. While the mutual fund offering isn’t as robust as Interactive Brokers, you still shouldn’t have trouble finding a fund that meets your needs. You’ll also get access to Merrill’s excellent trading platform as well as research from Bank of America, Morningstar and others. Customer service is available on the phone 24/7.
A great fit for: Those looking for a low-cost SEP IRA with excellent research offerings.
Wealthfront
If you’re looking to take a more hands-off approach to your investment selections, a robo-advisor can be a great choice and Wealthfront is one of the best. They’ll help you manage your SEP IRA by constructing a portfolio based on your investment goals and risk tolerance. Once you answer some initial questions, you won’t have to spend much time thinking about your portfolio. Wealthfront charges a 0.25 percent annual fee, but that amount is well below what you might pay a traditional financial advisor.
A great fit for: Investors looking to build a low-cost portfolio while spending minimal time managing their investments.
Betterment
Betterment is another robo-advisor option for your SEP IRA. Like Wealthfront, Betterment builds a portfolio using low-cost ETFs based on your investment goals and risk tolerance. You’ll pay a 0.25 percent annual fee for the basic tier, but a premium option is also available for 0.40 percent a year. You’ll need $100,000 to get started with the premium tier, but it does gain you access to a human advisor. Both tiers offer daily tax-loss harvesting and automatic portfolio rebalancing, two features that can be complicated for traditional advisors to provide.
A great fit for: Investors looking to build a low-cost portfolio while spending minimal time managing their investments.
