What's the difference between a SEP IRA and a Traditional or Roth IRA?

A SEP IRA is a type of retirement plan for those who are self-employed or who are small business owners. At Betterment, we currently only support SEP IRAs for those who are self-employed or small business owners with no employees.

For self-employed individuals, the primary difference between a SEP IRA and a Traditional or Roth IRA is the annual contribution limit. For 2020, the contribution limit to SEP IRAs for those who are self-employed is the lesser of 20% of net income from self-employment, or $57,000.

For 2021, the contribution limit has increased to the lesser of 20% of net income from self-employment, or $58,000.

The contribution limit for Traditional and Roth IRAs for 2020 and 2021 is $6,000. If you’re over age 50, it’s $7,000. Note that it is possible for a self-employed individual or small business owner to make both SEP IRA and Traditional/Roth IRA contributions in the same year.