Yes, you can have both a SEP IRA and a Roth IRA in the same year, as long as you meet the separate eligibility and income requirements for each, with contributions to the SEP IRA potentially lowering your Adjusted Gross Income (AGI) and helping you qualify for the Roth IRA. A SEP IRA is for employer/self-employed contributions (pre-tax), while a Roth IRA is funded with after-tax dollars, and you must adhere to their distinct contribution limits and income phase-outs for the Roth.
Yes, you can contribute to a traditional and/or Roth IRA even if you participate in an employer-sponsored retirement plan (including a SEP or SIMPLE IRA plan).
You can both receive employer contributions to a SEP-IRA and make regular, annual contributions to a traditional or Roth IRA. Employer contributions made under a SEP plan do not affect the amount you can contribute to an IRA on your own behalf.
The nice thing about a Roth IRA, it's like opening a back account. You don't even need to have a job to open one. it doesn't matter if you are self employed or employed by an employer that provides you with a retirement account. Anyone can have one.
SEP-IRA contribution limits
You can contribute up to 25% of your total compensation or a maximum of $70,000 for 2025 tax year or $72,000 for the 2026 tax year, whichever is less.
The 4% rule is a retirement guideline: withdraw 4% of your savings in the first year, then adjust that dollar amount for inflation annually, aiming to make your money last 30 years, but it doesn't account for taxes (Roth IRA withdrawals are tax-free, unlike Traditional IRAs) or varying market conditions, so it's a starting point, not a rigid rule, especially for early or very long retirements.
SEP IRA disadvantages include no employee contributions, requiring the employer to fund all, plus an equal percentage contribution rule for everyone (limiting owner contributions), no catch-up contributions for older workers, no loan options, and all funds are taxed on withdrawal (pre-tax). This makes them less flexible for both employees wanting to save more and employers wanting different contribution levels, but they remain simple for small businesses.
You can deduct contributions you make to a SEP-IRA for your employees up to the deduction limit. You'll make the deduction on Schedule C. As a self-employed taxpayer, you deduct the amounts you contribute to your own SEP-IRA, up to the maximum allowed. A SIMPLE plan is a type of retirement plan.
The SEP IRA "3 of 5 rule" is a key eligibility requirement where an employee must have worked for the employer in at least 3 of the immediately preceding 5 years (any work counts) to qualify for contributions, along with being at least 21 and earning a minimum compensation amount (e.g., $750 for 2024). This rule ensures that even part-time or seasonal workers who meet the criteria must receive contributions at the same percentage as the owner, making it a common, yet potentially strict, eligibility standard for Simplified Employee Pension plans.
The IRS finds out about Roth IRA overcontributions primarily through Form 5498, which your financial institution sends to you and the IRS showing your contributions, and by cross-referencing your tax return (Form 1040) with your income and filing status, sometimes catching errors years later when processing these forms. They also use Form 1099-R if you withdraw an excess amount, and your tax software (like TurboTax) might flag it as you file.
If your business sponsors another defined contribution plan in addition to your SEP plan (for example, a profit-sharing plan or a 401(k) plan), then your contributions for yourself to all these plans may not exceed 25% of your net earnings from self-employment (not including contributions for yourself), up to $69,000 ...
As these examples illustrate, this backdoor strategy of funding a Roth IRA may not make sense for you if you already have one or more SEP, SIMPLE or traditional IRA with earnings, previously deducted contributions and other taxable amounts, including rollovers from 401(k)s.
The Roth SEP IRA is a newly introduced retirement savings vehicle that blends the features of the Simplified Employee Pension (SEP) IRA with the benefits of a Roth account. As of 2025, this account is now available thanks to updates under the SECURE Act 2.
This can provide a tax savings in retirement. In most cases, unless you save the equivalent of the tax deduction you realize from using a traditional IRA, you'll end up with more money in retirement from maxing out a Roth IRA, due to that ability to take distributions without taxes.
Roth IRAs may not be best for Investors who want tax-deductible donations in the year they contribute rather than tax-free withdrawals years later. Traditional IRAs allow investors to put away a smaller relative percentage of their income, allowing for more available cash now.
By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to five-and-a-half times your salary. By age 60, your retirement savings goal may be six to 11-times your salary.
You should not open a Roth IRA if you have no earned income, if your income is too high (exceeds IRS limits), or if you expect to be in a lower tax bracket in retirement, as a Traditional IRA might offer bigger upfront tax savings. People needing immediate tax deductions or who want tax-free growth but are close to retirement might also benefit more from Traditional IRAs or other options, say Fidelity and Investopedia.
You generally don't report Roth IRA contributions on your tax return because they're made with after-tax money and aren't deductible, but you must report nonqualified withdrawals or Roth IRA conversions using IRS Form 8606 to determine if any portion is taxable or subject to penalties. Your custodian sends Form 5498 to the IRS and you for record-keeping, but you don't file it with your return.
The "240,000 rule" (or $1,000-a-month rule) is a retirement guideline suggesting you need $240,000 saved for every $1,000 of monthly income you want in retirement, based on a 5% annual withdrawal rate ($240,000 x 0.05 = $12,000/year or $1,000/month). It's a simple way to estimate savings needs, but it doesn't account for inflation, taxes, market volatility, or other income sources like Social Security, making it a starting point, not a complete plan.