May 15, 2024

Self-Directed IRA vs. Self-Directed SEP IRA

Written By: Daniel Gleich

Key Points 

  • A Self-Directed IRA (SDIRA) is a retirement account for individuals who want to grow their retirement savings by investing in a variety of alternative assets.
  • A Self-Directed Simplified Employee Pension, or SEP IRA, is a retirement plan for self-employed individuals or small business owners with a few employees.
  • With a reputable Self-Directed IRA custodian like Madison Trust, you can open an SDIRA or a Self-Directed SEP IRA.
Simplified Employee Pension Individual Retirement Arrangement SEP IRA written on notepad in pen

With a Self-Directed IRA (SDIRA), you have the potential to grow your retirement savings by investing in alternative assets, like real estate, precious metals, private placements, and promissory notes. If you like the concept of an SDIRA but are self-employed or own a small business with a few employees, you may benefit from a Self-Directed SEP IRA, a special type of SDIRA. 

Through a Self-Directed SEP IRA, you can enjoy greater control, the flexibility to invest in alternative assets, and the ability to make larger contributions than you’d be able to with  standard and Roth IRA plans. Below, we’ll go over the difference between a Self-Directed IRA and a Self-Directed SEP IRA. 

Clipboard that reads "Self-Directed IRA"

What is a Self-Directed IRA?

An SDIRA is similar to a standard IRA - you open and fund your account and invest in assets to help grow your savings so you can retire one day. The difference between these two accounts, however, lies in the types of investments you can make. While a standard IRA generally restricts you to stocks, bonds, and mutual funds, an SDIRA allows you to invest in alternative assets.As with a Traditional IRA, anyone can open an SDIRA as long as they earn taxable income.

How Does a Self-Directed IRA Work?

An SDIRA involves a custodian who will hold your assets, perform transactions at your direction, and support you with any necessary tax filings. Once you open and fund your account, you can submit an authorization form to your custodian. Then, your custodian will perform investment transactions on your behalf by sending your IRA funds to the alternative investment of your choosing.

What is a Self-Directed SEP IRA?

A Self-Directed Simplified Employee Pension, or a Self-Directed SEP IRA, is a simple, affordable retirement plan for self-employed individuals or small business owners with a few employees. As an employer, you may contribute to an account for yourself and to your employees' accounts.

Compared to other standard IRAs, like a Traditional IRA or Roth IRA, a Self-Directed SEP IRA allows you to make larger contributions while investing in alternative assets, like real estate, precious metals, and private placements. In 2024, employers can contribute a maximum of $69,000 per participant but no more than 25% of their compensation.

two small business owners laughing and talking about SEP IRAs

How Does a Self-Directed SEP IRA Work?

A Self-Directed SEP IRA is generally easy to set up and operate and likely comes with low administrative costs. You, the employer, will make the tax-deductible contributions for yourself and your employees. 

It’s important to note that you will need a Self-Directed IRA custodian, like Madison Trust to administer your Self-Directed SEP IRA. Your custodian will handle administrative tasks, hold custody of your assets, and act on your behalf as instructed. Since a custodian is not a financial advisor, it’s your responsibility to perform due diligence on your investments.

Who Can Open a Self-Directed SEP IRA?

A Self-Directed SEP IRA is worth exploring if you (and your employees, if applicable) are at least 21 years of age, have worked for your business at least three of the last five years, have received at least $750 in compensation for 2024, and consider yourself any of the following:

  • Self-Employed Individual 
  • Small Business Owner
  • Sole Proprietor
  • Partnership & LLC
  • Consultant, Freelancer & Entrepreneur
Self-Directed IRA vs. SEP IRA Infographic

Start Your Self-Directed IRA Journey Today

If you’re interested in saving for retirement through an SDIRA or Self-Directed SEP IRA,  schedule a discovery call with Madison Trust. We look forward to hearing from you!

Disclaimer: All of the information contained on our website is a general discussion for informational purposes only. Madison Trust Company does not provide legal, tax or investment advice. Nothing of the foregoing, or of any other written, electronic, or oral statement or communication by Madison Trust Company or its representatives, is intended to be, or may be relayed as, legal, tax, investment advice, statements, opinions, or predictions. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.

Got Questions?

Speak with a Self-Directed IRA Specialist.
Blog Pages Right Side Contact Form (#11)

You've got questions? We've got answers.

Fill out our form below, and a Self-Directed IRA Specialist will answer all of your questions. 
All Pages Bottom Contact Form
Corporate Headquarters:
Madison Trust Company
401 East 8th Street • Suite 200
Sioux Falls, SD 57103
Mailing Address:
Madison Administration Company
One Paragon Drive • Suite 275
Montvale, NJ 07645
Monday - Thursday: 9:00AM - 6:00PM EST
Friday: 10:00AM - 4:00PM EST
Saturday/Sunday: Closed
(800) 721-4900
[email protected]
F: 845-947-1212