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Understanding SEP IRAs

We offer SEP IRAs for customers who are either self-employed or small business owners, as long as they have no employees. Learn more about SEP IRAs at Betterment.

Articles by Betterment Editors

By the Editorial Staff
Betterment Resource Center  |  Published: September 1, 2018


Table of Contents

Getting Started

Funding Your SEP 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.

What is a Simplified Employee Pension IRA (SEP IRA)?

A SEP IRA can be a simple and efficient way for self-employed individuals and small business owners to save for retirement without the stress of complicated plan administration. Betterment supports SEP IRAs for only one plan participant. Typically, small businesses with two or more participants may also set up a SEP IRA for multiple employees. However, Betterment does not support this type of SEP IRA at this time.

SEP IRA contributions are treated like Traditional IRA contributions and are based on self-employed income. In general, contribution limits for SEP IRAs are higher than contribution limits for Traditional and Roth IRAs.

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 2019, the contribution limit to SEP IRAs for those who are self-employed is the lesser of 20% of net income from self-employment, or $56,000. Note that the limit for 2018 is the lesser of 20% of net income from self-employment, or $55,000.

The contribution limit for Traditional and Roth IRAs for 2019 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. To learn more about the advantages of a Betterment SEP IRA, you can read this article.

What forms do I need to fill out to get started with my SEP IRA?

It’s easy to start a SEP IRA with Betterment. When opening up a SEP IRA with Betterment, we’ll simply ask you to complete IRS Form 5305 and keep it for your own records. You do not need to mail this form to the IRS or to Betterment.

To start a SEP IRA with Betterment:

  1. Navigate to Home
  2. Click “Add New” on the menu
  3. Choose the SEP IRA option (from the “Tax-advantaged Retirement” section)
  4. Download and complete IRS Form 5305 and keep it for your records. You do not need to mail this form to the IRS or to Betterment

Can I have more than one participant in my Betterment SEP IRA?

No. Betterment does not support SEP IRA plans with more than one participant. Our SEP IRA is available for freelancers or small-business owners with no other employees participating in the plan. SEP IRAs can typically be used by small-business owners to provide retirement benefits to employees, and we are working to provide this capability in the future. If you plan to hire additional employees, please contact your tax advisor.

How much can I contribute to a Betterment SEP IRA?

For 2019, the contribution limit to SEP IRAs for those who are self-employed is the lesser of 20% of net income from self-employment, or $56,000. Note that the limit for 2018 is the lesser of 20% of net income from self-employment, or $55,000.

SEP IRA contributions depend on the type of your business, your self-employment income and IRS income and contribution limits that vary by year. To learn more about how much you specifically can contribute, please refer to the IRS calculator or speak with your tax advisor.

Please note that Betterment currently only supports SEP IRAs for small business owners who have no employees.

Can I contribute to a SEP IRA and a traditional or Roth IRA?

Yes. You can make contributions to a SEP IRA and make regular, annual contributions to a Traditional or Roth IRA. If you participate in a SEP IRA, you are considered an active participant in an employer-sponsored retirement plan. Typically, your contributions are tax-deductible, but this can change based on other retirement account contributions you are making, your income, or other factors. Contact your tax advisor and read more on the IRS website.

What tax forms will I receive from Betterment for my SEP IRA at the end of the year?

You will not receive any tax forms for your contributions, as the deadline for contributions is the due date of your tax return. However, any contributions will be reported on the Form 5498. This form is reported directly to the IRS by Betterment and will be uploaded to your account for reference.

You will receive a Form 1099-R if you made any distributions at tax time.

How long will it take for my SEP IRA to transfer to Betterment?

Rollovers typically take 2 to 3 weeks to complete. You can contact your existing institution to liquidate the funds before it rolls over to help move things along. You will receive a confirmation email from rollovers@betterment.com once the rollover has completed.

You can get started here. There are no negative tax consequences for a direct transfer.

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