How to Open a SEP-IRA

A graphic illustration about self-employed IRAs

Learning how to open a SEP-IRA, a self-employed individual retirement account, doesn't have to be complicated.

Here's the experience of Lisa Aberle, a Get Rich Slowly contributor who had been working as an independent contractor since 2010, along with working a full-time job, and in 2014 left that full-time job. That meant she no longer had access to a company-sponsored retirement plan and had to figure out the remaining path to retirement as a sole proprietor.

Here's how it went:

Step One: Answer some basic questions

Just don't procrastinate. Questions I asked myself: Should I just contribute more to my current IRAs? Or, since my self-employment income had really taken off, should I look at the self-employment options?

Because I was afraid of making the wrong decision, I didn't save anything for retirement for the first 17 months after leaving my full-time job.

Periodically over the 17 months, I searched for information on different self-employment plans and learned a little about SEP-IRAs, SIMPLE IRAs, and individual 401(k)s. And every couple of months, I told myself, You know, you really should figure that retirement thing out.

Step Two: Develop a criteria for the best self-employment retirement plan

Here's what happened first. With a looming deadline, I took about 10 minutes of final research to figure out whether a SEP-IRA, SIMPLE IRA, or individual 401(k) was better for me. Truly, I am not sure I optimized my decision, but here's what I do know: Having a good retirement plan is better than not having one.

As I did my research, my toddler was crying, my 5th grader was practicing his trombone, and my 8-year-old whined about her homework. You can imagine that my attention was drawn to words like “uncomplicated,” “simple,” and “easy to set up.”

According to my brief research, since I have no employees, any retirement plan I could choose has no reporting requirements. Also, I learned that individual 401(k)s have (way) higher contribution limits but more complicated paperwork and, depending on the broker, may also have higher administration costs. Both SEP-IRAs and SIMPLE IRAs promised to be easy to set up, with the SEP-IRA coming in with higher contributions limits, in general. I chose the SEP-IRA.

If you find yourself in a similar situation, Vanguard's website describes the three different major retirement plans with the pros and cons of each.

Related >> Compare retirement strategies

Step Three: Figure out where to open your self-employed retirement account

Next, I had to find a broker. The looming deadline for this post also trimmed my decision-making process here. I went with Vanguard because:

  • A) I have heard they usually have the lowest fees and …
  • B) … their website promised to take just minutes to set up a SEP-IRA.
    (Note: This is not a sponsored post of Vanguard. I'm just a regular ol' person sharing what I actually did.) I have also heard good things about Fidelity.

Vanguard's website was easy to navigate. Opening the account should have been easy and it was easy, just a little more complicated than I expected.

First, if speed is also important to you, I recommend having your bank's routing number and your account number at your fingertips to expedite the process.

All told, it took me about 10 minutes to fill out the information on the website. I did have to save my information and come back to it the next morning. I logged on, completed the application, and read the terms and conditions and other assorted legalese in about six minutes.

Then, I clicked submit … and saw this message: “Technical error — there was a problem with your registration.” Then, the website was unable to verify my identity, so I had to print off the paper copy of the information and snail mail it to Vanguard. It took three minutes to print off and review the paperwork.

The paper copy will be mailed soon. So for now, I still haven't started contributing.

Related >> SEP IRA vs. Self-Employed 401(k)

Step Four: Just start and change later

While “open retirement account” stared at me from my to-do list, to me it seemed like a Herculean task. While I don't think the process has gone completely smoothly, here's how much time I have put into it so far:

Research — 10 minutes

Filling out website information — 10 minutes

Reading terms and conditions — 6 minutes

Print off and review paperwork — 3 minutes

Altogether, it took just 29 minutes.

I know I am not done yet, but 29 minutes?! I should have crossed this off my list long ago.

Have you delayed a task — especially opening a retirement account — because you thought it would be hard to do (only to find out that it's not)? If you're self-employed, have you opened a self-employed retirement account? Tell us about your experiences in the comments!

More about...Investing, Retirement

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My Factoring Network
My Factoring Network
4 years ago

I think we should not ignore any type of retirement savings, 401(k), or any type of emergency savings which will help in future. It’s not only the savings but a clever investment can also be a good trick to retire easily. Good post. Planning to open a self retirement account can work for future.

Revé
Revé
4 years ago

Excellent post! I’m a relatively new full-time freelancer and I’ve been researching self-employed IRAs myself.

GJ
GJ
4 years ago

I hope your next post will be about your “self-correct” and will actually include the useful information that would make this article helpful. “You should open up a self-employed retirement account online – I was surprised it didn’t take much time!” is a breezy, surface-level conversation I could have with a friend at the playground. I come to GRS for a meatier conversation: What are the account options available? Pros and cons of each? What are the actual limits? Reputable brokers offering them? Additional factors that should inform my decision? I’m not asking for a manual, or even anything longer… Read more »

Lisa Aberle
Lisa Aberle
4 years ago
Reply to  GJ

Hi GJ, at this time, I have no plans to write additional articles on my SEP-IRA experience, but here’s an article you may find more helpful: https://www.getrichslowly.org/sep-ira-vs-self-employed-401k/
Hope that helps! – Lisa

JA
JA
4 years ago
Reply to  GJ

I completely agree with GJ. While I am not self employed, if I ever wanted to be, this article doesn’t actually provide any information other than the fact that there are 3 options to chose from. There is no way you could do just 10 min of research to choose an option.

This article was not worth the time to read as it had no helpful facts or links to help others research for themselves. It was an article that should not have been posted.

Lisa Aberle
Lisa Aberle
4 years ago
Reply to  JA

My goal with this article was to motivate people – by showing it was easier than I imagined – to take action on their retirement savings, so they didn’t miss out like I did. Aaaaannd, it looks like I struck out on this one. Sorry, folks! But, yes, I really completed my research in 10 minutes. All I had to decide was the type of account to open and which broker to choose. The research on how to invest the money that will go into that account will take longer. It was a much bigger deal in my head than… Read more »

Katherine
Katherine
4 years ago

totally agree starting something as soon as possible is very important – don’t forget though that you can take a loan from a 401k plan – or that Roth contributions can be a very nice feature of a 401k plan

Garrett H
Garrett H
4 years ago

You may not have plans on writing another article on the topic, but I think you’d be omitting something significant by doing so. Namely, what are you investing in? Personally, I’m planning on retiring in the year 2040, so I’ve made contributions up to the IRS limit towards Vanguard’s 2040 Target Retirement Fund. I know the expenses are slightly higher than a portfolio that I manage myself, but act now, correct later. Also, like you, I’m not a shill for Vanguard. Just passing on what I’ve done. Maybe it’ll be helpful to you.

Lisa Aberle
Lisa Aberle
4 years ago
Reply to  Garrett H

Good point, Garrett. I’ll check with our editor and see if she thinks a followup article would be beneficial. And thanks for your tips!

Patricia
Patricia
4 years ago

Thanks so much for your honesty about this…I (and others I’m sure) can relate to the obstacles you encountered-feeling like there isn’t enough time, and getting stuck deciding which options are the best. I made a very similar mistake by procrastinating last year! Your article helped me feel less guilty, and more motivated to get things right and get going for this new year. Thanks again!

one guy
one guy
4 years ago

When I found myself as an independent contractor two years ago, I went to Vanguard’s website and signed up for a personal 401K. Simple to do, a piece of cake. As a self-employed person, the limits of 401K contributions are MUCH higher that as an employee of a corporation. There are two kinds of contributions to a 401K, the employee and (optionally) the employer. For an employee, the employee kind of contributions are the normal stuff that gets deducted from paycheck; the employer stuff is (for example) the match that is sometimes added. But if you are self-employed, you can… Read more »

Teresa
Teresa
4 years ago

Seriously, stop bashing Lisa and do some of your own reading and decision making.

Financial Samurai
Financial Samurai
4 years ago

I opened up a SEP-IRA after starting my business after leaving corporate america.

IT’s worth it, and you can contribute $53,000 for 2016 pre-tax if you make enough!

Keith Jacobs
Keith Jacobs
4 years ago

I believe self directed accounts (SEP, IRA) provided by discount brokers like E-Trade, TD Ameritrade, and Auto Shares are good sources. Especially if you are trading individual stocks unattended like I’m currently doing.

Dividend Growth Investor
Dividend Growth Investor
4 years ago

I opened up a SEP IRA several years ago. It was an easy straightforward thing to do.

If I weren’t covered by a 401k at work, I would have likely opened a solo 401k at a place like Fidelity.

Doc's Salt-Free
Doc's Salt-Free
4 years ago

I did the same thing and choose a SEP for my moonlighting income because of how quick and easy it was. I spent so much time trying decide between the 3, then I just pulled the trigger.

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