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SEP IRA vs. Roth IRA: How do they compare?

Key differences in purpose, contribution limits and tax advantages of these two retirement accounts.

A simplified employee pension (SEP) individual retirement account (IRA) and Roth IRA are two investment accounts that give you tax benefits to save for retirement.

However, these two accounts vary in terms of contribution limits and who they’re best for. Find out more about how these accounts differ to see which is right for you.

SEP IRA vs. Roth IRA: A quick comparison

SEP IRARoth IRA
Where to openBrokers, banks or other financial institutionsBrokers, banks or other financial institutions
Investment optionsAll assets are permitted inside an IRA except collectibles and life insurance

The IRA custodian determines available investment options

All assets are permitted inside an IRA except collectibles and life insurance

The IRA custodian determines available investment option

Income limitsNoneIndividuals filing as single and head of household.
Contribute up to $7,000 if your 2024 modified adjusted gross income (MAGI) is under $146,000; individuals with a MAGI above $146,000 can contribute a reduced amount until contributions are phased out upon reaching a MAGI of $161,000

Married couples filing jointly.
Contribute up to $7,000 each if your MAGI is under $230,000 per year; married couples with a MAGI above $230,000 can contribute a reduced amount until contributions are phased out upon reaching a MAGI of $240,000

Contribution limitsLesser of 25% of employee’s compensation or $69,000

Based only on the first $345,000 of the employee’s compensation in 2024 (1)

$7,000 for those under age 50

$8,000 for those aged 50 and over

Eligibility requirementsEmployee is at least age 21

Employee has worked for the employer in at least 3 of the last 5 years

Employee will receive at least $750 in compensation for 2024 (2)

No age requirements, but you need earned income to contribute

Income limits apply

Who can contributeEmployersAnyone with earned income, so long as their income doesn’t exceed a certain threshold
Tax advantagesStructured as a traditional IRA, which offers:

Tax-deductible contributions

Tax-deferred growth

Earnings grow tax-free

Qualified withdrawals are tax-free

Withdrawal restrictions

Withdrawals before age 59.5 generally incur a 10% additional tax

Withdrawals of earnings before age 59.5 from a Roth IRA you’ve held less than five years will incur taxes and penalties (exceptions apply)

Withdrawals of earnings after age 59.5 from a Roth IRA you’ve had more than five years will be subject to taxes but not penalties

Required minimum distributions (RMDs)Must begin taking RMDs on April 1 of the year following the calendar year in which you reach age 73None
FDIC insuranceSEP IRAs that contain bank deposits such as CDs, savings accounts or money market accounts are insured up to $250,000Roth IRAs that contain bank deposits such as CDs, savings accounts or money market accounts are insured up to $250,000
SIPC insuranceSIPC insures cash and securities up to $500,000 at SIPC-member brokersSIPC insures cash and securities up to $500,000 at SIPC-member brokers
Pros
  • Tax-deductible contributions
  • Tax-deferred growth
  • Employee is 100% vested
  • Relatively high contribution limits
  • Flexible investment options
  • Tax-free growth and qualified distributions are tax-free
  • No RMDs
  • Withdraw contributions at any time without tax or penalty
  • Flexible investment options
Cons
  • Only employers can contribute to the account
  • Withdrawals before 59.5 are taxed as ordinary income and receive a 10% tax penalty
  • Must hold account for five years to withdraw funds penalty-free
  • Can’t contribute above a certain income
  • Relatively low contribution limits
Learn more about Roth IRAs

SEP IRA vs. Roth IRA: Which one’s better?

SEP IRAs and Roth IRAs are both tax-advantaged retirement accounts in which individuals can invest in a range of assets, but their tax structures and who can contribute are what differentiate these accounts the most.

When to consider a SEP IRA

A SEP IRA may be a good option if you:

  • Are an employer. A business of any size, even self-employed, can establish a SEP IRA.
  • Want to set aside retirement savings for yourself and your employees. Without the startup and operating costs of a 401(k) and relatively high contribution limits, a SEP IRA can be a good option if you want to help employees save for retirement.

When to consider a Roth IRA

Consider a Roth IRA if you:

  • Want an IRA outside of workplace savings. Even if an employer contributes to a SEP IRA on your behalf, contribute to your own individual IRA. Contribute up to $7,000 in total across all your Roth IRAs and traditional IRAs in 2024.
  • Want matching contributions. Robinhood offers IRA matches. Robinhood will match up to 3% on IRA contributions when you subscribe to Robinhood Gold or 1% when you don’t.

The similarities between SEP IRAs and Roth IRAs

While both SEP IRAs and Roth IRAs are two types of IRAs, they differ greatly in terms of contribution limits, tax structure and who can contribute.

However, SEP IRAs and Roth IRAs share these similarities:

  • Trading platforms. If you open a SEP IRA or Roth IRA with a broker, you’ll have access to the same trading platform and available tools.
  • Investment options. Invest in stocks, bonds, exchange-traded funds (ETFs), mutual funds and more in SEP IRAs and Roth IRAs.

SEP IRA vs. Roth IRA: Where to open these accounts

SEP IRAs and Roth IRAs are available at many banks, brokers and other financial institutions. However, while Roth IRAs are a common account type, not every bank or broker offers SEP IRAs. The best stock trading apps offer SEP IRAs, Roth IRAs and other account types, letting you invest for different goals all under one roof.

Alternatives to a SEP IRA and a Roth IRA

While SEP IRAs and Roth IRAs are great options to trade and invest, other accounts may be more appropriate depending on your goals:

  • SIMPLE IRA. Similar to a SEP IRA, this account lets employers and employees contribute to traditional IRAs set up for employees. In 2024, employees can contribute up to $16,000 to a SIMPLE IRA.(3)
  • Solo 401(k). This is structured as a traditional 401(k) plan, but it’s designed for a business owner with no employees or that person and their spouse. Solo 401k contribution limits sit at $69,000 in 2024, with an additional $7,500 catch-up contribution for those 50 or older.

Compare brokerages that offer IRA accounts

Narrow down top brokers by annual fee, stock trade fee and more to find the best for your financial goals.

1 - 7 of 7
Name Product USFST Minimum deposit Annual fee Retirement account types
Tastytrade IRA
Finder Score: 4.3 / 5: ★★★★★
Tastytrade IRA
$0
$0 per year
Roth, Traditional, SEP, Rollover, Beneficiary Traditional, Beneficiary Roth
Invest in stocks, ETFs, options, futures and more in your IRA, with commission-free stock and ETF trades and a powerful trading platform.
Robinhood Retirement
Finder Score: 4.4 / 5: ★★★★★
Robinhood Retirement
$0
$0 per month
Roth, Traditional, Rollover
Boost your retirement savings with 1% in matching funds on every dollar contributed, transferred or rolled over to a Robinhood IRA.
SoFi IRA
Finder Score: 4.1 / 5: ★★★★★
SoFi IRA
$0
$0 per month
Roth, Traditional, SEP, Rollover
Trade stocks, options, ETFs, mutual funds and alternative asset funds, with complimentary financial advice.
Acorns Later
Finder Score: 4.2 / 5: ★★★★★
Acorns Later
$0
$3 per month
Roth, Traditional, SEP
Automatic ETF investing with as little as $5. Annual fee of $3, $6 or $12 per month depending on subscription.
Wealthfront
Finder Score: 4.5 / 5: ★★★★★
Wealthfront
$500
0.25%
Roth, Traditional, SEP, Rollover
Automated stock and bond ETF investing with the ability to trade individual stocks for as little as $1 apiece.
Vanguard IRA
Finder Score: 4 / 5: ★★★★★
Vanguard IRA
$0
$20 per year
Roth, Traditional, SEP, Spousal, Rollover
Save for retirement with Vanguard's commission-free stocks, ETFs and 160+ no-transaction-fee mutual funds.
Interactive Brokers IRA
Finder Score: 4.5 / 5: ★★★★★
Interactive Brokers IRA
$0
$0 per year
Roth, Traditional, SEP, Rollover
Choose from 6 IRA account options, with access to stocks, ETFs , futures, currencies and more.
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Frequently asked questions

Is a Roth IRA better than a SEP IRA?

A Roth IRA isn’t necessarily better than a SEP IRA. These two retirement accounts have different purposes. Individuals set up Roth IRAs to fund their own retirement savings, while employers set up SEP IRAs and contribute on their employees’ behalf.

What is the downside of SEP IRA?

A couple of downsides to SEP IRAs are that only employers contribute to the account and the same withdrawal restrictions of traditional IRAs apply — withdrawals before 59.5 are taxed as ordinary income and receive a 10% tax penalty.

Who is a SEP IRA best for?

A SEP IRA is best for employers of any size who want to offer a retirement savings plan but don’t want to pay the startup and operating costs of a 401(k).

Do you pay taxes on a SEP IRA?

Employers can deduct their contributions, and employees don’t need to include these contributions in their gross income.

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Written by

Editor, Investments

Matt Miczulski is an investments editor at Finder. With over 450 bylines, Matt dissects and reviews brokers and investing platforms to expose perks and pain points, explores investment products and concepts and covers market news, making investing more accessible and helping readers to make informed financial decisions. Before joining Finder in 2021, Matt covered everything from finance news and banking to debt and travel for FinanceBuzz. His expertise and analysis on investing and other financial topics has been featured on CBS, MSN, Best Company and Consolidated Credit, among others. Matt holds a BA in history from William Paterson University. See full bio

Matt's expertise
Matt has written 208 Finder guides across topics including:
  • Trading and investing
  • Broker and trading platform reviews
  • Money management

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