Self-Directed SEP IRAs – The No-Nonsense Retirement Plan for Real Estate Entrepreneurs

Posted on October 1, 2014 by

If it’s a combination of high contribution limits and downright simplicity and ease of administration you’re looking for, and you have significant cash flow coming from your own business, practice as an independent contractor or other earned income from self-employment, then the SEP IRA, including the Self-Directed SEP IRA may be the way to go.

How it Works

The SEP IRA, or Simplified Employee Pension plan, is an employer-funded, defined contribution pension plan available to businesses of any size, including single-employee corporations, independent contractors and self-employed individuals.

Entrepreneurs in each of these categories initiate a SEP IRA plan to cover all qualified employees. The plan sponsor then funds the plan on an equal basis for each covered employee. You cannot set up a plan to cover yourself alone, if you have other employees. You must contribute to the plan for all qualified employees, equally, across the board. However, this is obviously not much of a concern for independent contractors and for businesses owned and operated by a single employee or a husband and wife team.

Contributions are tax-deductible to the business, and balances grow free of income and capital gains tax until the plan beneficiary elects to take money out. At that time, any distributions are taxed as ordinary income:

Distributions before age 59½ are generally subject to a 10 percent penalty on top of the income tax, unless hardship conditions apply.

In retirement, plan beneficiaries must begin taking distributions by April 1st of the year after the year in which they turn 70½, or face stiff tax penalties.


As retirement savings vehicles go, SEPs provide a great combination of high annual contribution limits and simplicity:

  • The annual contribution limit per employee is 25 percent of annual compensation or $52,000, whichever is less. This is much greater than the $5,500 maximum deductible contribution available for IRAs ($6,500 for those age 50 and older).
  • There is no ongoing commitment to fund the plan.
  • There are no ongoing filing requirements
  • Fees and operating expenses are comparatively low compared to other pension plan options
  • Available for the self-employed.


Yes, you can choose to self-direct your SEP IRA investments. This means that with a SEP IRA, you are not restricted to the standard investment company menu of mutual funds, stocks, bonds, annuities, CDs, GICs and money markets. Instead, you can choose to take personal charge of your investments, just as you would in your own personal, taxable account, with a few exceptions. This enables you to choose any of these asset classes:

  • Rental real estate
  • Commercial real estate
  • Tax liens and certificates
  • Closely-held businesses
  • Partnerships
  • LLCs
  • Joint ventures
  • Gold and precious metals (with some restrictions)
  • Pipelines
  • Oil & gas investments
  • Foreign investments
  • Private equity and venture capital
  • Private lending
  • Hard-money lending
  • And much more…


The IRS prohibits you from directing retirement plan investments into gems, jewelry, certain forms of gold and precious metals, art, collectables and alcoholic beverages. You also can’t buy or sell directly from yourself, your spouse, your ascendants or descendants, your spouse’s ascendants and descendants or any entities controlled by any of these individuals. Your SEP IRA cannot lend to or borrow from any of these prohibited counterparties either.


SEP IRAs do not support plan loans. If you want to be able to borrow from your retirement plan, the 401(k) may be more appropriate.

SEP IRAs also don’t support the Roth option under current law. If you are willing to give up the tax deduction in return for tax-free growth, again you may want to consider the 401(k).

For those able to contribute higher amounts, you may also want to consider the Solo 401(k), because in many cases, the law allows for higher total contributions when you add employee and employer contributions together.

Have questions? Call us today at 866-7500-IRA (472). Or visit us online at You can be confident you’ll be speaking with one of America’s leading authorities on self-directed retirement investing. We look forward to hearing from you.

Jim HittJim Hitt is the Chief Executive Officer of American IRA and he has been committed to all aspects of investing for more than 30 years, using self-directed IRAs for his own investments since 1982. Jim’s forte is the financing and acquisition of real estate, private offerings, mortgage lending, business’s, joint ventures, partnerships and limited liability companies using creative techniques.

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