The Pros and Cons of a Sep Retirement Plan 

Gordan Hall

Nov 27, 2009

The Simplified Employee Pension (SEP) retirement plan is often touted by banks as a simple and effective way for self employed individuals and small business owners to save for retirement.  However, you should weigh the pros and cons of the SEP retirement plan carefully before deciding to open one.  

The point that’s usually considered the biggest perk of having a SEP retirement plan is the fact that you can reduce your taxable income even at the last minute.  For example, even if you open up an SEP plan in 2008, you can make a contribution for 2007.  You can open up an SEP plan at any point up until the tax income return.  

Another perk of the SEP retirement plan is that contributions do not have to be made every year and are made by the employer only.  Furthermore, employees of employers that have high turnover rates are not eligible for SEP contributions.  There are also no employer filing requirements.  

However, there is also a downside to having an SEP retirement plan.  SEP plans are required to cover part-time employees who have worked three out of the five past years making $500 annually.  If you contribute funds on your behalf you will have to do it for every employee that qualifies.   

Another problem with the SEP retirement plan is its tax structure.  The contributions are tax-deductible but the earnings and withdrawals are taxed.  This means more paperwork for you in order to report everything to the IRS.  Furthermore, you will ultimately be paying more in taxes since tax rates will probably be higher and you will most likely be in a higher tax bracket at retirement.  

Most importantly, when it comes to delivering returns, SEP plans are lacking.  The most lucrative investment plan out there is the self-directed Roth IRA.  Self directed Roth IRAs can be managed by a company that is set up to help people self direct their accounts.  These companies can guarantee to double or even triple your returns by investing your assets in real estate.  

The SEP retirement plan, like a traditional IRA or 401k, is limited when it comes to investment options.  On the other hand, self directed IRAs are much more flexible and offer a much wider range of investment options.  

The best investment venue to date is real estate because it is lucrative, stable, and low-risk.  That is because its value tends to increase over time, it is insured against common forms of loss like natural disaster, and there is always a demand for homes and land as long as prices are affordable. 

In order to capitalize on that demand, there are companies out there that buy up old homes in neglected urban areas, renovate them, and resell them to working-class families.  Since they charge affordable prices, the homes are bought quickly and there is even a waiting list of qualified buyers.  The whole process takes 4-6 weeks so your assets can be invested and re-invested in the same way.  

Do yourself a favor and weigh your options carefully.  If you want to maximize your returns, pay less in taxes, and have more control of your account, you should roll over to a self directed Roth IRA.  An SEP retirement plan may seem like an easy option initially but when you look closer, there are many downsides to having one.  Instead, focus on self directing a Roth IRA so you can save money and increase your returns substantially.

To learn more about starting your own self directed ira account, go to www.selfdirectediracorp.com