February 2025
There are business opportunities related to SEP-IRAs and IRA custodians/ trustees should be making business decisions as to what SEP-IRA services, if any, will it render.
A financial institution wants to have a basic understanding of its customer base Who wants to make SEP-IRA contributions and who might make SEP-IRA contributions.
The tax benefits associated with SEP- IRAs are great. Fairly often in this newsletter we have explained or indicated the average annual SEP-IRA contribution is in excess of $15,000. The maximum SEP-IRA contribution for 2024 is $69,000 and is $70,000 for 2025. A bank or other financial institution wants to service those small businesses which do or will consider making SEP-IRA contributions. Servicing one-person SEP plans is so simple every institution should do it. With respect to small businesses having employees, servicing them can also be simple. The small business must understand that the SEP-IRA plan is a retirement plan and it must be administered. A financial institution may decide that it will provide the administrative services, but that is not required.
The purpose of this article is to argue - there are business customers who have SEP-IRAs who will want to exercise the new right to have the employer’s SEP contribution go into a Roth SEP-IRA versus a standard SEP-IRA. A person who has a successful business may not want the complexity of a 401(k) plan. A person who has a successful business many times will be ineligible to make a Roth IRA contribution because their income is too high. These individuals somehow want to get money into a Roth account. Participating or having a Roth SEP-IRA gives them that opportunity. This opportunity first became available in 2023 because of a law change made by SECURE 2.0.
CWF can assist you with the plan documents and other forms which a business must execute to be able to make Roth SEP-IRA contributions. You may and should charge a reasonable fee to a customer. By offering this service you can acquire new businesses as your customers. Again, there are successful individuals who want to make “Roth” contributions. You want to help them make such contributions.
The IRS has issued guidance that an employer with a SEP-IRA will need to decide if their plan will be amended giving any participant the right to decide to have the employer contribution go into a Roth SEP-IRA account or a standard SEP-IRA account or both. The SEP-IRA custodian/trustee will have to perform “separate accounting” for Roth SEP-IRA contribution. The SEP-IRA custodian/trustee does have a new duty to perform when a participant designates their contribution as a Roth IRA SEP contribution. For IRS reporting purposes, their contribution is treated as if a Roth conversion has occurred, A Form 1099-R must be prepared to report this deemed conversion distribution because it is taxable.
We at CWF are here to assist you if you wish to offer any Roth SEP-IRA services or any standard SEP-IRA services. Call us with your questions or email us.
A small business has until the tax filing deadline (including an extension) to establish and contribute to a Roth SEP-IRA or a standard SEP-IRA.
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