SEP IRA FAQs

What is a Self-Directed SEP-IRA?

With Rocket Dollar, the SEP-IRA, similar to a Solo 401(k), works best for a small business owner. You can have employees with a Self-Directed SEP-IRA as long as you contribute equally to eligible participants.

 

Pricing

The SEP-IRA requires a Gold Account for $600 and then $30 a month. Customers can still open a Traditional IRA or Solo 401(k) with a Core Account to receive those dollars. 

SEP Basics

A SEP-IRA at Rocket Dollar allows you to run a high contribution level plan, similar to that of a Solo 401(k), but also have employees. If you don't plan on having any employees, you can read about our comparison of the two types of plans here.

SEP-IRA stands for Simplified Employee Pension Individual Retirement Account. Its administration is more straightforward and usually much cheaper than a full-fledged 401(k) plan. There is no magic number for the proper amount of SEP employees before a company should switch to an administered 401(k) plan. The IRS allows up to 100 employees to be in a SEP. However, because of the enforced rule of equal employer contributions, it usually works best for high-profit businesses with a smaller group (2-10) of similarly compensated employees. Using a Rocket Dollar SEP-IRA will allow ALL of your employees to hold almost any investment in their retirement accounts.

Rocket Dollar does not offer company-wide 401(k) plans, but we are happy to help individuals with SEP-IRAs, Traditional IRAs, and Roth IRAs.

SEP-IRA Contributions Limits

Employer contributions can be calculated in two different ways but must be applied in the same way for all employees. First, the business owner decides if they want to contribute to that plan year or not. Then, they calculate a company-wide contribution. Employer contributions cannot exceed the lesser of...

  1. 25% of the employee's compensation
  2. $56,000 for 2019 ( $55,000 for 2018)

The maximum employee salary you can use to calculate and report on the 25% compensation is $280,000 in 2019.

Example Contributions

A company has 3 partners that all make $100,000 a year. 

  • The partners can personally choose to defer up to $20,000 (20% of their total compensation)
  • The company can set up a max company contribution of $25,000 (25% of their total compensation)
  • This means that trying to max out contributions, each employee could save $45,000. 

Important Contribution Factors to Consider

  • Employer contributions ARE tax deductible for your business.
  • You get to decide if you IF and HOW MUCH you are contributing every year for your plan.
  • You can calculate employer calculations either way (25% of comp or $56,000)

SEP-IRA Contribution Deadlines

A SEP-IRA must be established before the tax filing deadline. All eligible employee plans for that plan year must be opened in the same year.

Contributions are due by April 15th in the following year.

  • 2018 contributions have until April 15th of 2019
  • 2019 contributions have until April 15th of 2020

What employees are eligible for a SEP-IRA plan?

If an employee meets the three conditionals below, they are eligible and must be included in the plan.

  • The employee is 21
  • The employee has worked for the employer for at least 3 out of the last 5 years
  • The employee has received at least $600 in compensation

If the employee meets the conditions below, they ARE NOT eligible.

  • Employees covered by a union agreement
  • Employees who are non-resident aliens and don't collect US wages

Roth Contributions

The SEP-IRA does not have Roth contributions. Any individual can open a Roth IRA at Rocket Dollar, and small business owners with no full-time employees can utilize a Self-Directed Solo 401(k)

How would this work for myself and my employees at Rocket Dollar?

First, you would fill out the paperwork with Rocket Dollar to establish a plan. Your employees would then sign-up if they want to use Rocket Dollar or they can use the provider of their choice. Keep in mind that if your employee is new to investing or retirement accounts, that Rocket Dollar might not be the best choice. Make sure that anyone opening an account at Rocket Dollar understands that it is a platform for alternatives and the possible investment risks. Ultimately it is your employees' responsibility as you are not the plan fiduciary over their investments with a SEP - IRA, but when in doubt, it is best to follow those guidelines.

Each one of your employees and you would have your own account to manage your own investments. This is typical for a SEP-IRA. Each of your employees would manage their SEP-IRA individually or could work with their personal advisor.

Pricing: Your employees would enjoy access to almost any investment in a Self-Directed Rocket Dollar Account at $360 to sign up, and $15 per month.

 

Your company card can be on file with all of your employees' Rocket Dollar Accounts if you wish to cover fees.

 

If you wish to sign up yourself or your employees in bulk for Rocket Dollar accounts, please contact our Sales team at 1-855-762-5383.

 

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