SEP IRA (Simplified Employee Pension)

A self-directed SEP IRA is still a SEP IRA under Internal Revenue Code §408(k). The “self-directed” designation refers to the account structure and the range of investments a qualified IRA custodian may permit under applicable IRS rules and custodial policies.

SEP IRAs are commonly used by small business owners and self-employed individuals, with contributions made by the employer under applicable federal tax rules.

In a self-directed structure, the account holder directs investment selections within the account, subject to IRS regulations and the custodian’s policies. Depending on the qualified IRA custodian, the account may permit investment in asset types beyond publicly traded securities, such as certain real estate interests or privately offered investments.

All IRA assets are held and titled by the qualified IRA custodian, which maintains required records and issues applicable IRS reporting forms, including Form 5498 and Form 1099-R, where relevant. 

Takeaway:

A self-directed SEP IRA follows the same tax treatment as a standard SEP IRA under Internal Revenue Code §408(k), while the “self-directed” structure refers to how investments are directed within the account based on custodian policies and IRS rules.

A self-directed SEP IRA may be established by a business that adopts a SEP plan under Internal Revenue Code §408(k). This includes business structures such as sole proprietors, partnerships, and corporations, subject to plan requirements and IRS rules.

Eligibility to participate in the SEP IRA is determined by the employer’s plan and applicable IRS rules. If the business has eligible employees, contributions are generally required to be made on a consistent basis, typically as a uniform percentage of each eligible employee’s compensation, in accordance with plan provisions. In a self-directed structure, the account operates under the same eligibility and contribution rules as a standard SEP IRA. 

Takeaway:

Eligibility to establish and participate in a SEP IRA is based on employer adoption of the plan and applicable IRS rules, rather than the “self-directed” structure of the account.

SEP IRA contributions are made by the employer and are generally limited to the lesser of 25% of an eligible employee’s compensation or the annual additions limit under Internal Revenue Code §415(c). For 2026, the annual additions limit is $72,000, subject to applicable IRS rules and plan provisions.

A self-directed SEP IRA follows the same contribution rules as a standard SEP IRA. Because contributions are based on compensation, the allowable contribution amount may vary from year to year. All contributions must be made in accordance with the employer’s SEP plan and applicable federal tax rules.

Takeaway:

SEP IRA contribution limits are based on a percentage of compensation and the annual additions limit under Internal Revenue Code §415(c), rather than a fixed contribution amount each year.

Setup costs for a self-directed SEP IRA typically include account establishment fees, ongoing administrative fees, or transaction-based fees, depending on the qualified IRA custodian’s fee schedule. These costs may differ from those of standard brokerage IRA accounts because qualified IRA custodians may perform additional record-keeping and administrative functions for certain asset types.

You might also encounter transaction fees when specific asset transactions are processed. Fee structures vary by qualified IRA custodian and may depend on the types of assets held in the account. IRA Club, a self-directed administrator, offers a flat-fee pricing model within its viewable fee schedules. 

Takeaway:

Setup and ongoing fees for a self-directed SEP IRA depend on the qualified IRA custodian’s fee schedule, the account structure, and the types of assets held in the account.

A self-directed SEP IRA may invest in certain real estate assets, among other alternative investments. This may include certain residential property, commercial real estate, or land to name a few. 

Expenses related to IRA-owned real estate are paid from the IRA, and income generated by the property is returned to the IRA. Transactions involving real estate in an IRA remain subject to applicable IRS rules, including prohibited transaction restrictions under Internal Revenue Code §4975.

Takeaway:

A self-directed SEP IRA may hold certain real estate assets when permitted by the qualified IRA custodian and applicable IRS rules, with expenses and income generally remaining within the IRA structure.