SEP IRAs are a great retirement saving tool for anyone who is self-employed or runs a family business with their spouse. These retirement accounts can allow you to save up to $53,000 a year and not pay any taxes.
This means, they not only allow self-employed individuals to run up the score on their retirement savings, but also to run down the cost of taxes.
The problem many self employed individuals face is where to open a SEP IRA. Many end up choosing banks and other high price options because they are entrepreneurs, not investment experts.
Best Places to Open a SEP IRA Account
So the tricky part of this is that different people have different needs. So there is no on-e best place to open a SEP IRA, but what I am going to do is break these down into categories and give you the all the options I can to make this choice as easy as possible.
Best SEP IRA Provider for Low Fee Trading
This is a website dedicated to helping people find the best deal. With that in Mind Ally has very low cost trading at only $4.95 a trade.
Features of TradKing:
- Zero account set up fees
- Zero account maintenance fees if you have no activity on the account for 12 months AND have a balance of less than $2500.
- Zero minimum deposit to open an account, but you get better perks if you put in $500 and even better if you start with $5,000.
- Commissions of $4.95 for trades on stocks or ETFs and no more than $9.95 for trades on mutual funds.
Open an account with Ally Invest>>
Best Hands Off SEP IRA
Robo-advisors work like traditional brokerage accounts except for they do all the trading for you. All you have to do is answer a few questions that determine how much risk you want to take and your retirement goals and the algorithm does the rest. Betterment has become the leading robo-advisor for SEP IRAs and has great options for anyone looking for hands-off retirement investing. Betterment is such an interesting company I did a review of Betterment’s services.
Features of Betterment:
- Easy to Use Interface
- Built-in re-investment of dividends
- Built-in portfolio rebalancing
- Low fees for all transactions
- Low starting balance of $250
TOP SEP IRA Provider for Peer to Peer Lending
Peer to Peer lending has become a huge industry and allows regular investors to invest in the loans to other individuals. LendingClub has become the industry leader and has issued over $18 billion in loans.
What you get to do with a SEP from LendingClub is invest in these loans and get paid back interest from the borrower. You can choose your risk tolerance based off the credit rating of the individual and LendingClub gives you a ton of information on how loans are doing and what you can expect to earn.
You do need to be aware that if you start with less than $5,000 there is a setup fee of $100. Also, if you have less than $10,000 in your SEP IRA account then you will be charged $100 annually for maintenance of the account.
The fees are because this is a self-directed account that is set up through another company. A $100 maintenance fee for a small account is pretty common in the self-directed account marketplace.
Features of LendingClub:
- Easy to use interface
- Automatic reinvestment available
- Easy to understand risk assessment
Top SEP IRA Provider for ETF Investing
Exchange traded funds (ETFs) are a way to invest in mutual and index funds without having the high cost of entry that most fund brokers require. For example, many mutual and index fund will require a minimum investment of $3,000 to buy into the fund. ETFs invest in the same funds but allow you to by just a small piece just like you buy a small piece of a company when you buy a stock. So you can buy into a bunch of different funds, that buy into a bunch of different companies and really spread out your risk.
TD Ameritrade is the leader in ETFs because they offer over 100 commission free ETFs. That’s right, you buy in and pay nothing for it. This makes them an easy choice for anyone looking to get into the ETF game.
Features of TD Ameritrade:
- A top broker for educational information
- Good customer service
- Great mobile apps
- More than 125 bricks and mortar locations
SEP IRA with the Best Trading Tools
If you are a more experienced investor then you are going to want the best trading tools possible. OptionsHouse makes one of the best claims to that mantle and frequently gets mentioned as the top trading platform for experienced investors. What is also nice about this brokerage is that they directly compete with TradeKing for low fees. So if you are into the tools this really is a great option for your SEP account.
Features of OptionsHouse:
- Easy to use platform
- Great commission schedule
- Top of the line for options trading
- Great for active traders
SEP IRA Strategy
If you have significant income and are looking to put several thousand dollars a year into a SEP then I would shy away from using just one of the above investment options. What is nice about SEP accounts is that you can have more than one.
The only limits you have are on how much money you can put into your SEP account(s), not on how many accounts you have. So whether you have one SEP IRA or four you can only put 25% of your income or $52,000, whichever one is smaller.
So instead of putting all my investments in one SEP account I would open three. I would do one account with Betterment to take advantage of their robo-advisor platform and have a set and forget strategy.
A second account with LendingClub. This gives me investments that are not dependent on stock investments and should be more stable, even if they produce slightly less interest over some periods of time.
Finally I would open a brokerage account for active trading. If you want to invest in individual stocks I would choose Ally Invest. I like their interface and they have really done a great job. If you want to go the ETF route the TD Ameritrade is your best option.
Who Qualifies for a SEP IRA
Any employer is able to establish a SEP IRA. This means if you are a sole proprietor, nonprofit, partnership, any type of employer. So if you have 1099 income you can get your SEP on, but it probably isn’t worth your while until you get your business income above 22,000 a year. That is the point where you would max out your Roth IRA and could then Contribute to both a Roth and a SEP.
Bottom Line
SEP IRA accounts are a big benefit to small business owners. They allow people who spent the early part of their business scraping by personally and reinvesting their money into the business to catch up quickly with those who have been saving a little each month in more traditional types of retirement accounts.
If you have the option to go the SEP IRA route with your business, then it is something I highly recommend you explore. If you have multiple employees that are not family members, then it may not be your best option. However, for anyone running a one man show or small family only business it can be the best investment option for your needs.
James says
Solid guidance for the self-employed.
Nancy Ross-Ascuitto says
Can I open an SEP at a bank?
Paul says
Yes you can open a SEP at a bank. The only downside to that is you are locked into only the options that the bank offers. So you will only be offered products like CDs and Money Market accounts. Your best bet is a brokerage or robo-advisor.