SEP IRA Explained (Easy To Understand!)

A SEP IRA is a lesser-known employer-sponsored retirement vehicle option that can especially be helpful for those that are self-employed and those that own small businesses. We will discuss the most important aspects of SEP IRAs such as how they work, what they are, their benefits, and their drawbacks.
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#sep
#sepira
#ira
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This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Before making financial and legal decisions, consult financial and legal professionals licensed in your jurisdiction. Some links provided may be part of an affiliate advertising program designed to provide a means of compensation for referring traffic and business to other companies.

[@OnCashFlow]

You Need To Watch My Complete Guide To Slashing Income Taxes! kzbin.info/www/bejne/jZ2kk3SdZZx_fpo

[@ttudoc5690]

Thank you! Any chance you could do a video on SIMPLE IRA and even the comparisons of the SEP and SIMPLE

[@OnCashFlow]

To be honest, I have sorta shifted my channel away from purely informational search-style videos so I probably won't be making a video like that any time soon. I welcome you to check out some of my newer content, though!

[@JayCosta]

good video thanks

[@OnCashFlow]

I'm always happy to help! Please subscribe because I have gotten a lot better at making videos :)

[@depecheddurand]

Do we have to contribute 20% of our salary ? what if business is slow ? can we contribute less like 10% or 15% can you explain? and lets say next year business grows and we can increase the percentage?

[@OnCashFlow]

You can increase or decrease as desired as long as you don't exceed the maximum contribution allowed.

[@Enchanteralle]

Can you roll over your 401k from previous employer to a SEP-IRA account you establish? Or is it best to keep your former employer's 401k as is and then contribute to a SEP-IRA when self employed/a sole proprietor?

[@OnCashFlow]

Yes, You can also roll it over into a regular IRA (which I would prefer) and keep the SEP IRA separate.

[@cherylkindred4838]

Could you compare sepIRA with solo401k specifically?

[@OnCashFlow]

Hi Cheryl, I would love to learn more about those and share it with you, however, I do have to be careful about making too niche of videos for a broader audience. I think this website might help you out a lot on this subject as it has for me :) www.solo401k.com/blog/can-i-contribute-to-a-sep-ira-and-solo-401k/

[@sergiopach]

Wait a minute, I thought a SEP IRA was for self employed individuals? Why do you say only the employer can contribute to the Sep IRA?

[@OnCashFlow]

an employer can set up a SEP for themselves and their employees.

[@WeBeatMedicare6969]

You are the employer AND the employee

[@jamesscarbrough8865]

Thanks for all the info!

[@OnCashFlow]

Absolutely! I'm glad it was helpful! I've got plenty of other videos that I hope you will also find useful!!!

[@oz-wealth8629]

Awesome channel bro ! i just started my own channel as well!

[@OnCashFlow]

I wish you the best of luck!

[@shakearaabney857]

With SEPIRA, are all of the withdrawals after retirement age taxed? Is it possible to have withdrawals after the retirement age tax free similar to IRAs where you invest taxed income?

[@OnCashFlow]

I don't understand your question, sorry.

[@shakearaabney857]

With SEPIRA, are all of the withdrawals after retirement age taxed? Is it possible to have withdrawals after the retirement age tax free similar to IRAs where you invest taxed income?

[@OnCashFlow]

Yes, just like a Traditional IRA. You would have to convert it into a Roth IRA (pay tax on conversion) then withdrawal it tax free from the Roth IRA later.@@shakearaabney857

[@manuvns]

when and how do i contribute to my sep IRA from my business account ? when i run biweekly payroll ?

[@OnCashFlow]

You simply make a cash transfer into the account just like a regular IRA. You can make contributions anytime that you like. You could do biweekly, monthly, quarterly, or just once annually. It's up to you.

[@manuvns]

thanks! so i will run payroll monthly/biweekly and can do a seperate SEP contribution whenever i want ! @@OnCashFlow

[@jasondacumos2517]

What if the employees are part time minimal hours or haven’t been working that long?

[@OnCashFlow]

An eligible employee is an individual (including a self-employed individual) who meets all the following requirements: Has reached age 21 Has worked for the employer in at least 3 of the last 5 years Received at least $750 in compensation for 2023 ($650 in compensation for 2021 and for 2022 from the employer during the year and $600 for 2019 and for 2020) An employer can use less restrictive participation requirements than those listed, but not more restrictive ones. I think the 3 out of 5 years requirement should make them not eligible if you establish your SEP that way. www.irs.gov/retirement-plans/plan-sponsor/simplified-employee-pension-plan-sep#participate

[@TheClipCapital]

great video!

[@OnCashFlow]

Thank you very much for the positive feedback! I really do appreciate it!

[@dmoon9037]

@OCF, if you are running this channel as a small business LLC, have you looked at a Roth/Solo 401(k)? I’ve been looking at e*Trade, wondering if you have other recs on a Solo.

[@OnCashFlow]

I am a sole prop right now, but plan to form an LLC after I move to a much tax friendlier state (very soon!). I have been doing the research into solo 401(k)s and I have also found that E-trade to be among the best options since they offer Roth/Traditional at the same time. Fidelity (which I use for my taxable/IRAs) only offers traditional solo 401(k) and their contributions are quite outdated (phone/check only!). Vanguard is apparently pretty expensive to hold a solo 401(k). So really no, E-trade is going to be my go to when my business warrants it, but things can change of course!

[@dmoon9037]

@@OnCashFlow that’s great news to hear of your imminent departure from CA (bad news for that state, as I recently looked up “basket case” in the dictionary and saw “1. California state government...” top billing)

[@lostinmyspace4910]

my employer gives a SEP IRA to me for a few years now. I have never reported it on Form 8606 because I never thought I could take the deduction for it since he did on his expense side. All these SEPs I've been receiving are before tax anyway. Do I prepare a Form 8606 for each year he gives me a SEP contribution?

[@OnCashFlow]

I cannot give tax advice, but I is my understanding that there are no reporting requirements for a SEP IRA, both for the employer and the employee. It's not included in your gross income for your W-2 besides the checked box that indicates a retirement plan. I hope this helps a little!

[@freightliner-zz1cj]

I am self employed and I am the only employer, can I still do it?

[@OnCashFlow]

Yes

[@fabiGBOtown]

Im confused. You said earlier in the video that it wouldn't affect my personal account i.e. roth ira. But later you said i can't have a sep roth ira. So, am I allowed to have a roth ira if i habe a sep? Or should i consided a solo 401k instead? Thank you

[@OnCashFlow]

SEP and Roth IRA are separate accounts. You can contribute to a Traditional IRA and/or a Roth IRA up to the 6k limit. The SEP IRA is taxed similarly to a traditional IRA and there is no "Roth version" (there has been news about implementing one, but I don't think anything has come about yet) So yes, you can have and contribute to your Roth IRA and to a SEP IRA. I would strongly consider a solo 401k because I think it is superior if you make a decent amount of SE profit.

[@lenarabinovich8382]

So does this mean that I need to fist do my taxes and then contribute to this? Or do I used my 2020 taxes to figure out how much money I made?

[@OnCashFlow]

For 2021 tax year the amount you can contribute to your SEP is based on your 2021 income. You can wait till 2022 to see how much net profit you have so that you can calculate the maximum amount you can contribute.

[@jone.4111]

Very informative. Thanks! Exactly what i was searching for.

[@OnCashFlow]

Thank you very much! I'm so glad that it was helpful!

[@namly9868]

Thank you very much

[@OnCashFlow]

You are very welcome, thank you for watching!

[@ELI5FI]

My SEP IRA is great! I max it out every year. I evaluated a Solo 401K vs SEP IRA and chose the latter because of it's simplicity to set up. I wish it wasn't limited to $57,000. It would be awesome if it was just 25% with no limit LOL.

[@OnCashFlow]

That's awesome! what a great position to be in to max out a SEP IRA every year! If I ever make that much while self employed, I think I'm leaning more towards a solo 401(k) but that's a bridge to cross at another time for me.

[@prettyyoungthing1008]

What company do you recommend to start up a SEP IRA?

[@wilsonveloso3910]

Does it mean your employees also gets 57k a year?

[@CarolGiambri1]

Excellent video explanation of SEP IRA as hubby has a small one person business. Himself that is. I suppose age is no barrier. Ignorance is our embarrassing story plus bad accountant. Yikes. But sooner than later even if we are 80 or 90, time is on our side. Thank you.

[@OnCashFlow]

It's never to late to take control of your financial life! :)

[@donttread5414]

Do you have a single SEP-IRA's or multiple SEP-IRA's if multiple contributors? 1. Would my employed (W2) and self employed (sole prop) SEP-IRA contributions go in to a single SEP-IRA, or would I be required to have two SEP-IRAs? 2. Is there any problems with taking a SEP contribution for my sole prop income and S-Corp W2 income? 3. Would I keep two Form 5305-SEP's for my records? My Sole prop income was in Q1 only. This sole prop then became a SM-LLC (S-corp election) and was my income for the rest of the year.

[@OnCashFlow]

Sorry, I will be honest with you. These questions are beyond my scope of knowledge on the subject. I would seek the help of a qualified tax professional that specializes in the self-employed.

[@Sarah-id9qs]

Thank you for the information! Can a self-employed spouse create a SEP IRA for their spouse as well?

[@OnCashFlow]

If she is an employee then yes, the SEP is maintained by the employer and the employer decides how much to contribute to the SEP for all employees (and it has to be the same for everyone)

[@tonzbal_88]

Being self-employed I just opened a SEP IRA. I was wondering if my wife who has a side hustle could also open a SEP IRA for herself. We file our taxes jointly.

[@OnCashFlow]

Should be good to go to open it up at anytime. She should be able to make a contribution if she has profit from her side hustle.

[@israelpadilla3790]

Can you use a SEP IRA to buy real estate? If you can, how does that process work?

[@OnCashFlow]

I'm not sure if you can self direct a SEP, bit you can with a regular/Roth IRA. You have to open a self directed account somewhere that offers it and transfer existing assets to the self directed account

[@LuisluigiTexas]

Unfortunately you’re not specific enough when it comes to explaining the contribution limits. It is 25% of the income in S corp but you don’t mention whether that is 25% of the payroll or of the whole income including distributions. And if it’s 25% of the net payroll or gross payroll. It seems like you talk so fast like you’re breezing through the content and leave us more confused. You should be more detailed if you really are informing people. Otherwise what’s the point of your videos? Just to make passive income for you ?

[@OnCashFlow]

I assure you that it is not my intention to leave you more confused. I apologize if this video comes off that way. A few years ago when I made this video I just wanted to explain the concept to others looking for an explanation. I am not a tax professional, nor do I state that I am. I am a laymen, and I try to explain things in layman terms. Sorry that this video was not for you. Trust me, my KZbin channel isn't passive income, I put a lot of work in and get a lot of training in order to get a little bit better every time I post a video. Please try to watch one of my new videos to see if I have improved. I have also focused a lot less on specific tax topics, so this issue shouldn't happen again.

[@steelplastic2700]

@OnCashFlow You forgot to multiply the total income by half of the SE tax 15.3% and subtract from net profit . Then that total should be multiplied by .20% if you want the exact maximum dollar amount that you can contribute in a given year. Ex) $100,000*.0765=$7650 subtracted from $100k is $92,350. $92,350*.20=$18,740 maximum contribution, not $25,000.

[@OnCashFlow]

Thank you for that clarification. I am still learning about the more specialized self employment options. It is very confusing how the IRS lists different percentages for the business owner vs employees

[@ninachan2833]

I heard that some one made less than $30k the contribution calculation is different