SEP IRA: The Roadmap to Retirement for Self-Employed Individuals

June 20, 2017


In today’s workforce, a variety of employment models are becoming increasingly prevalent. Ideas of traditional employment are shifting, especially in regards to self-employed individuals. Whether you are a freelancer, independent contractor or another form of self-employed, making smart choices in saving for retirement is important.

According to the U.S. Bureau of Labor Statistics, 10 percent of Americans, or 15 million individuals were listed as self-employed in 2015. Another report by UpWork and the Freelancers Union listed 55 million freelancers in the United States, or about one third of the nation’s population. Thankfully for these individuals, a viable alternative to a traditional IRA is available.


A SEP IRA, or Simplified Employee Pension Individual Retirement Account, allows for employers to contribute to the account instead of employees. With a SEP IRA, you contribute to yourself and to your employees. As an employer, you are allowed to contribute up to 25 percent of an employee’s pay, with a maximum contribution of $54,000 in 2017. The money and investment returns are taxed upon withdrawal.

This allows for a great deal of flexibility and can be essential to individuals who have fluctuating incomes, like freelancers, as contributions are allowed until the tax deadline. In addition, individuals with a SEP IRA do not have to contribute to their account every year, which can be beneficial for those operating on a tight budget.


Although SEP IRA’s can provide great benefits for self-employed individuals, certain characteristics of the plan can be adverse. If you have employees, you are generally required to fund SEP IRA’S for these individuals in addition to yourself. Any employee who is 21 years of age or older, has an annual income of $600 and has been employed by you in at least three of the past five years would qualify.

In addition, a fee would be applied if you withdraw any money before the age of 59 and a half, similar to traditional IRA’s. You are also required to withdraw funds from your SEP IRA at age 70 and a half at the latest.

Overall, comparing plans to evaluate which option is best for you is crucial in preparing for a successful retirement. A SEP IRA could be the roadmap to a relaxing retirement for many self-employed individuals.

Ron Sanders

Written by Ron Sanders

Recent Posts