The Simplified Employee Pension, or SEP IRA, is a popular retirement option for self-employed individuals as well as small-business owners. Employers (and the self-employed) can contribute up to 25% of an employee's total earnings, up to an annual maximum. However, what if you have two jobs, both of which offer SEP IRA retirement benefits? Or, what if you have one SEP IRA from your job, and want to open a second to save some of your self-employment income?
Can you have more than one SEP IRA?
The short answer is yes, you can have multiple SEP IRA accounts. However, the combined annual contributions cannot exceed the IRS's maximum, which is currently $53,000 or 25% of compensation, whichever is less. If you're self-employed, the calculation is slightly more complicated, and you can view a thorough description here.
For example, let's say that your employer contributes to a SEP IRA on your behalf, and plans to contribute $10,000 for 2016. You also earn money from doing consulting work on the side, so it's permissible to open a second SEP IRA through a brokerage, as long as you adhere to the overall contribution limitation.
All SEP IRA contributions are from the employer -- unlike other retirement plans like 401(k)s, there is no such thing as employee contributions to a SEP IRA. Self-employed individuals can use SEP IRA accounts, and are considered to be both the employer and employee.
Why choose the SEP IRA for your retirement savings?
As the name implies, a SEP IRA is a simple form of retirement account. SEP retirement plans are easy to establish and maintain, contributions are flexible for employers, and employees are always 100% vested in their retirement savings. Like a traditional IRA or 401(k), contributions are made on a tax-deferred basis, meaning that they won't count as taxable income this year, but future withdrawals in retirement will be considered taxable income.
Further, SEP IRA contributions can be invested in virtually any stock, bond, or mutual fund you'd like to buy -- you're not limited to a small selection of mutual funds like with most 401(k) plans.
You can have more than one SEP IRA, but be aware of the alternatives
A SEP IRA is an excellent retirement savings solution, but it's important to mention that it's not the only type of retirement savings plan available to self-employed individuals and small-business owners. For example, a SIMPLE IRA allows for employees to contribute up to $12,500 and also allows for employer-matching contributions. Or, for many self-employed individuals, the Solo 401(k) could be the account type with the highest annual contribution limit.
The bottom line is that even though you can have multiple SEP IRA accounts, you should still do your homework and make sure it's the best retirement savings option for your situation(s).
For more information on IRAs of all kinds, make sure to visit the Fool's IRA Center. If you haven't gotten started yet using these investment vehicles, we'll help you figure out what you need to know.
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