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Saving is an important part of your financial health and building wealth, but it can be confusing to understand all the different vehicles out there. For instance, if you want to stash cash away for a good long while, should you open a Roth IRA or a savings account?

A Roth Individual Retirement Account (IRA) offers a tax-advantaged way to invest money for retirement. Brokerages and banks can offer Roth IRAs for investors who want to set aside money that they don’t anticipate spending for the near future.

Savings accounts can also be used to hold money you plan to spend at a later date. The main difference between a Roth IRA and savings account, however, lies in what they’re intended to be used for.

If you’re debating whether to keep your money in a Roth IRA or savings account, it’s helpful to understand how they work, their similarities and differences, and the pros and cons of each option.

What Is a Savings Account?

A savings account is a type of deposit account that can be opened at a bank, credit union, or another financial institution. Savings accounts are designed to help you separate money you plan to spend later from money you plan to spend now.

Here’s how a savings account works:

•   You open the account and make an initial deposit.

•   Money in your account can earn interest over time, at a rate set by the bank.

•   When you need to spend the money in your savings account, you can withdraw it.

Previously, savers were limited to making six withdrawals from a savings account per month under Federal Reserve rules. In 2020, the Federal Reserve lifted that restriction, though banks can still impose monthly withdrawal limits on savings accounts. Exceeding the allowed number of withdrawals per month could trigger a fee or could lead to the account being converted to a checking account.

Types of Savings Accounts

Banks can offer more than one kind of savings account. The range of savings accounts available can depend on whether you’re dealing with a traditional bank, an online bank, or a credit union.

Typically, these accounts will be insured up to $250,000 by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).

Generally, the types of savings accounts you can open include:

•   Traditional savings. Traditional savings accounts, also called regular, basic, or standard savings accounts, allow you to deposit money and earn interest. Rates for traditional savings may be on the low side, and you might pay a monthly fee for these accounts at brick-and-mortar banks.

•   High-yield savings. The main benefits of high-yield savings accounts include above-average interest rates and low or no monthly fees. For example, online banks may offer high-yield savings accounts with rates that are many times higher than the national average savings rate, with no monthly fee.

•   Money market savings. Money market savings accounts, or money market accounts, combine features of both savings accounts and checking accounts. For example, you can earn interest on deposits but have access to your money via paper checks or a debit card.

•   Specialty savings. Some types of savings accounts are created with a specific purpose in mind. For example, Christmas Club accounts are designed to help you save money for the holidays. A Health Savings Account (HSA) is a tax-advantaged specialty savings account that’s meant to be used for health care expenses.

You could also add certificates of deposit (CDs) to this list, though a CD works differently than a savings account. CDs are time deposit accounts, meaning that when you put money in the account, you agree to leave it there for a set term. If you take the funds out before then, you will likely be charged a fee.

Once the CD matures, you can withdraw your initial deposit and the interest earned. For that reason, CDs offer less flexibility than other types of savings accounts.

Recommended: Savings Account Calculator

Pros and Cons of Using a Savings Account for Retirement Savings

Savings accounts can be used to save for a variety of financial goals, including retirement. You might be wondering whether it makes a difference if you use, say, a high yield savings account vs. Roth IRA or other retirement account to save, as long as you’re setting money aside consistently.

While savings accounts can offer convenience and earn interest, they’re not necessarily ideal when saving for retirement if your primary goal. Here are some of the advantages and disadvantages of using a savings account to plan for retirement.

Pros	Cons
Savings accounts are easy to open and typically don’t require a large initial deposit.	A savings account does not offer any tax benefits or incentives for use as a retirement account.
Banks and credit unions can pay interest on savings account deposits, allowing you to grow your money over time.	Interest rates for savings accounts can be low and may not outpace inflation.
You can withdraw money as needed and don’t have to reach a specific age in order to use your savings.	Banks can impose fees or even convert your savings account to checking if you’re making frequent withdrawals.
Savings accounts are safe and secure; deposits are protected up to $250,000 when held at an FDIC member bank.	If you’re putting all of your retirement funds into the same savings account, it’s possible that your balance might exceed the insured limit.

Recommended: Different Ways to Earn More Interest on Your Money

What Is a Roth IRA?

A Roth IRA is a type of individual retirement account that works somewhat differently than a traditional IRA. Traditional IRAs are funded with pre-tax dollars and allow for tax-deductible contributions when doing taxes. Once you turn 72, you’re required to begin taking money from this kind of account.

The way a Roth IRA works is that you set aside money using after-tax dollars, up to the annual contribution limit. That means you can’t deduct contributions to a Roth IRA. However, you won’t pay taxes on account earnings and will be able to withdraw funds tax-free in retirement.

You can leave money in your Roth IRA until you need it, which may allow it even more time to grow. Unlike traditional IRAs, there are no required minimum distributions for Roth IRAs. If you don’t use all of the money in your Roth IRA in retirement, you can pass it on to anyone you’d like to name as your beneficiary.

The IRS allows you to make a full contribution to a Roth IRA if you’re within certain income thresholds, based on your tax filing status. The full contribution limit for 2025 is $7,000, or $8,000 for those 50 and up. For 2026, the limit is $7,500, or $8,600 for those 50 and up. You can make a full contribution if your tax status is:

•  Married filing jointly or a qualified widow(er) with a modified adjusted gross income of up to $236,000 in 2025 (up to $242,000 in 2026)

•  Single, head of household, or married filing separately and did not live with your spouse during the year with a modified adjusted gross income of up to $150,000 in 2025 (up to $153,000 in 2026)

Contributions are reduced once you exceed these income thresholds. They eventually phase out completely for higher earners.

Pros and Cons of Using a Roth IRA for Retirement Savings

Roth IRAs are specifically designed to be used for retirement saving. Again, that’s the chief difference between a Roth IRA and savings account. That doesn’t mean, however, that a Roth IRA is necessarily right for everyone. For example, you may need to weigh whether a Roth IRA or traditional IRA is better, based on your income and tax situation.

Here are some of the advantages and disadvantages associated with choosing a Roth IRA for retirement savings.

Pros	Cons
Money in a Roth IRA can be invested in stocks, mutual funds, and other securities, potentially allowing your money to grow faster.	Investing money in the market is riskier than stashing it in a savings account; there’s no guarantee that you won’t lose money in a Roth IRA.
You may be able to open a Roth IRA with as little as $500 or $1,000, depending on the brokerage or bank you choose.	Brokerages can charge various fees for Roth IRAs. Individual investments may also carry fees of their own.
Earnings grow tax-free and you can withdraw original contributions at any time, without a penalty.	You can’t withdraw earnings tax-free until age 59 ½ and the account is at least 5 years old.
You can save money in a Roth IRA in addition to contributing money to a 401(k) plan at work.	Not everyone is eligible to open a Roth IRA, and there are annual contribution limits.

Similarities Between a Roth IRA and a Savings Account

Roth IRAs and savings accounts do have some things in common. For example:

•   Both can be used to save money for the long-term and both can earn interest. So you could use either one or both as part of a retirement savings strategy.

•   You can open a Roth IRA or savings account at a bank and initial deposits for either one may be relatively low. Some banks also offer Roth IRA CDs, which are CD accounts that follow Roth IRA tax rules.

•   Savings accounts and Roth IRAs held at banks are also FDIC-insured. The FDIC insures certain types of retirement accounts, including Roth IRAs, when those accounts are self-directed and the investment decisions are made by the account owner, not a plan administrator.

•   It’s possible to open a savings account for yourself or for a child. Somewhat similarly, you can also open a Roth IRA for a child if they have income of their own but haven’t turned 18 yet.

When comparing the benefits of Roth IRAs vs. savings accounts, however, Roth accounts have an edge for retirement planning. Whether it makes sense to choose something like a high-yield savings account vs. a Roth IRA can depend on what you want to set money aside for.

Roth IRA vs Savings Account: Key Differences

To understand how savings accounts and Roth IRAs compare, it helps to look at some of the key differences between them.

	Roth IRA	Savings Account
Purpose	A Roth IRA is designed to save for retirement.	Savings accounts can fund virtually any short- or long-term goal.
Who Can Open	Taxpayers who are within certain income thresholds can open a Roth IRA.	Adults with valid proof of ID can open a savings account, regardless of income or tax status.
Interest	Money in a Roth IRA earns compounding interest based on the value of underlying investments.	Savings accounts earn interest at a rate set by the bank.
Tax Benefits	Roth IRAs grow tax-free and allow for tax-free qualified distributions, with no required minimum distributions.	Savings accounts don’t offer any tax benefits; interest earned is considered taxable income.
Contribution Limits	Roth IRAs have an annual contribution limit. For 2025, the limit is $7,000 ($8,000 if you’re 50 or older); for 2026, the limit is $7,500 ($8,600 for those 50 and up).	There are no contribution limits, though FDIC protection only applies to the first $250,000 per depositor, per account ownership type, per financial institution.
Withdrawals	Generally, you can’t withdraw earnings without paying a penalty before age 59 ½ (though there are some exceptions). Original contributions can be withdrawn at any time without a penalty.	Banks can limit the number of withdrawals you’re allowed to make from a savings account each month and impose a fee for exceeding that limit.
Risk	Investing money in a Roth IRA can be risky; you may lose money.	Your deposits are protected (up to the insured limit).

How to Decide If a Roth IRA or Savings Account Is Right for You

If you’re unsure whether to open a Roth IRA vs. a high-yield savings account, it’s helpful to consider your goals and what you want to do with your money.

You might decide to open a Roth IRA if you:

•   Specifically want to save for retirement and potentially earn a higher rate of return

•   Would like to be able to withdraw money tax-free to buy a home or pay higher education expenses (the IRS allows you to avoid a tax penalty for these distributions)

•   Want to supplement the money you’re contributing to a 401(k) at work

•   Expect to be in a higher tax bracket at retirement and want to be able to withdraw savings tax-free

•   Don’t want to be required to make minimum distributions at age 72

On the other hand, you might open a savings account if you:

•   Have a short- or medium-term goal you’re saving for

•   Want a safe place to keep your money

•   Are satisfied with earning a lower rate of return on savings

•   Need to be able to keep some of your money liquid and accessible

•   Aren’t concerned with getting any type of tax break for your savings

The good news is that you don’t have to choose between a high-interest savings account vs. a Roth IRA. You can open one of each type of account to save for both retirement and other financial goals.

The Takeaway

Opening a retirement account can be a smart move if you’d like to save money for your later years while enjoying some tax breaks. A Roth IRA could be a good fit if you’re eligible to open one and you’d like to be able to make tax-free withdrawals once you retire.

Having a savings account is also a good idea if you’re building an emergency fund, saving for a vacation, or have another money goal that is a few months or years away. Your deposits will earn interest and you’ll be able to easily access your funds (penalty-free) when you need them.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.60% APY on SoFi Checking and Savings.

FAQ

Is it better to put money in savings or a Roth IRA?

A savings account can be better for setting aside cash you know you’ll need in the next few months or years. A Roth IRA, on the other hand, is better suited for saving for retirement, since it has greater growth potential (though returns are not guaranteed), while also providing tax benefits.

Should I use a Roth IRA as a savings account?

While you could use a Roth IRA as a savings account, you generally can’t access earnings on the account until age 59 ½ without paying a penalty. Another downside of using a Roth IRA as a savings account is that funds are typically invested for long-term growth. If you withdraw money in the short-term, you could lose money due to fluctuations in the value of your assets.

What is the downside of a Roth IRA?

One of the main disadvantages to a Roth IRA is that contributions are made with after-tax money, which means you don’t get a tax deduction in the years you contribute. Another drawback is that not everyone can take advantage of a Roth IRA, since there are income limits on contributions.

Also keep in mind that the maximum annual contribution to Roth IRA is relatively low compared with a 401(k). As a result, you will likely need other accounts to adequately save for retirement.

Can I move money from savings to a Roth IRA?

You can link a savings account to a Roth IRA to transfer funds. If you’d like to move money from savings to your Roth account, you’d just log into your brokerage account and schedule the transfer. Keep in mind that Roth IRAs do have annual limits on how much you can contribute.

Are Roth IRAs Insured?

Yes, Roth IRAs can be insured, but coverage depends on the type of investments within the account. Generally, if your IRA holds cash in a bank, it is protected by the Federal Deposit Insurance Corporation (FDIC), up to certain limits. If your IRA is invested in securities at a brokerage, it is protected by the Securities Investor Protection Corporation (SIPC), up to certain limits, from brokerage failure. SIPC does not protect against a decline in the market value of your investments.

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SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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A self-directed Simplified Employee Pension (SEP) IRA is a tax-advantaged retirement savings plan that’s designed for small business owners and self-employed individuals. When a SEP IRA is self-directed, it means that the account owner chooses their own investment options.

A self-directed SEP IRA can be used to invest in a broad range of investments. At the same time, the SEP IRA has the tax benefits of a standard IRA, when certain conditions are met.

Understanding SEP IRAs

A SEP IRA is one of several types of retirement accounts that are geared toward business owners and self-employed individuals. Here’s a look at how these plans work.

Definition and Eligibility

A SEP IRA allows the self-employed and business owners to make contributions toward their own retirement — and toward the retirement of any employees they may have. SEP IRAs operate like traditional IRAs in terms of how they’re treated for tax purposes.

Here are some key points to know about these retirement accounts:

•   Contributions to a SEP IRA are made by the employer.

•   Employers are not required to make contributions to the plan every year.

•   If an employer decides to contribute to a SEP IRA, they must do so on behalf of all eligible employees.

•   Employees cannot contribute to their SEP IRA.

•   SEP IRA rules allow employers, not employees, to deduct contributions.

•   Employer contributions don’t affect what employees can contribute to any traditional or Roth IRAs they may own.

•   Qualified withdrawals beginning at age 59 ½ are taxed as ordinary income.

•   Withdrawals made before age 59 ½ can trigger a 10% early withdrawal penalty unless an exception is met.

•   SEP IRAs are subject to required minimum distribution (RMD) rules.

Small businesses of any size can open a SEP IRA, including sole proprietorships. If you run a small business alone you could use a SEP IRA to fund your own retirement.

If you’re self-employed and considering a solo 401(k) vs. SEP IRA, a SEP account is easier to start and generally has fewer fees and paperwork requirements. SEP accounts also offer the same annual contribution limits as individual 401(k) plans.

Contribution Limits and Tax Advantages

The IRS determines the annual contribution limits for SEP IRAs and other retirement plans. For 2025, employers can contribute the lesser of:

•  25% of the employee’s compensation

  OR

•  $70,000

For 2026, employers can contribute the lesser of:

•  25% of an employee’s compensation

  OR

•  $72,000

Unlike other retirement plans, SEP IRAs do not allow for catch-up contributions. Again, all of the money comes from the employer; employees cannot make elective salary deferrals.

There are certain tax benefits of a SEP IRA for employers and self-employed individuals. Employers can deduct contributions made to employee plans. For the self-employed, there’s a special formula for determining what to deduct. You’ll use your net earnings from self-employment, less deductions for one-half of your self-employment tax and contributions made to the plan.

Employees don’t get a tax deduction and they’ll owe taxes on qualified withdrawals in retirement. However, they receive the benefit of contributions made to their account on their behalf and they still have the option to contribute to a traditional or Roth IRA themselves.

What Makes a SEP IRA Self-Directed?

With a traditional or Roth IRA, or a workplace retirement plan, your plan’s custodian, which is the financial institution that holds your plan’s investments, decides which investment options to offer. Typically, that might mean a mix of mutual funds, index funds, target-date funds, and exchange-traded funds (ETFs).

Self-directed SEP accounts allow you to choose investments yourself, including alternative investments. Your custodian holds your IRA but you decide how much to contribute up to the annual contribution limits, and how to invest that money.

Benefits of a Self-Directed SEP IRA

A self-directed SEP IRA offers several benefits for people who are comfortable choosing investments themselves. You’ll need to follow self-directed SEP IRA rules to set up one of these accounts, but it could be worth considering if you run a business or are self-employed. Advantages of a self-directed SEP IRA include:

Tax-Deferred Growth and Diversification

When you contribute to a SEP IRA self-directed plan, you fund your account with pre-tax dollars. Those contributions may grow in the account on a tax-deferred basis; qualified withdrawals are taxed at ordinary income tax rates in retirement.

You may be able to increase diversification in your portfolio with a self-directed SEP account since you can choose from a broader range of investment vehicles. While mutual funds can offer exposure to a variety of investments in a single basket, a self-directed IRA could allow you to move beyond that by choosing other types of investments.

Potential for Higher Returns

A self-directed retirement account has the potential to generate higher or lower returns than other retirement accounts, depending on what you choose to invest in and how those investments perform. No investment is without risk. It’s important to research investments for a self directed SEP IRA to compare:

•   Historical performance

•   How performance is affected by current market trends

•   Risk profiles

•   Fees

Higher returns often correspond to higher levels of risk, which is something you’ll need to factor into your decision-making. The closer you are to retirement age, the less comfortable you may be with taking on more risk for the possibility of more profits.

Estate Planning Opportunities

Self-directed SEP IRAs have potential as an estate-planning tool if you’re using them to invest in higher-value assets. The tax-advantaged status of a self-directed IRA may help you preserve more of your wealth if you hold investments that generate significant returns.

You can pass that wealth on by naming one or more beneficiaries to your SEP IRA. You could leave your account to an individual, or name a trust as the beneficiary. Choosing a trust to inherit your self directed IRA funds could make sense if you’d like to maintain a degree of control over how the money is managed after you’re gone.

For instance, if you’re caring for a child, sibling, or other relative with special needs, you might establish a special needs trust on their behalf. You could name the trust as beneficiary to your self- directed retirement accounts to ensure that money is set aside and used for their care.

Setting Up a Self-Directed SEP IRA

Establishing a self-directed IRA for yourself requires some research, as you’ll need to decide which IRA custodian to use and how to fund the account. Once your account is open you’ll need to adhere to tax and reporting requirements.

Choosing a Self-Directed IRA Custodian

A self-directed IRA custodian holds your account and has no responsibility for your investment choices or how those investments perform. When deciding which custodian to use, consider:

•   How easy the new account setup process is

•   What fees you’ll pay

•   Customer support and service if you have questions or need help

•   The company’s overall reputation

The SEC warns investors about fraudulent self-directed IRA custodians who may establish fake companies in an effort to take their money. It’s wise to verify whether a custodian is IRS-approved and licensed before opening a self-directed SEP IRA or transferring any money to the account.

Rollover or Transfer Process

Once you’ve found a reputable custodian to work with, you can begin the process of opening and funding your account. The IRS allows you to roll over or transfer funds from an existing retirement account into a self-directed SEP IRA.

•   Trustee-to-trustee transfers allow you to move money directly from your old IRA custodian or trustee to your new one. No money enters your hands directly and no taxes are withheld from the transfer amount.

•   Direct rollovers let you move money from one type of retirement account, such as a solo 401(k), into a different one, like a self-directed SEP IRA. Similar to transfers, no money enters your hands and no taxes are withheld from the rollover amount.

•   Indirect rollovers involve the administrator of your old retirement account sending you a check for the money in the plan, with taxes on the distribution withheld. You then have 60 days to deposit the check into your new self-directed SEP account to avoid a tax penalty.

Of these options, a direct transfer or rollover IRA is the simplest option. Your new custodian should provide you with the paperwork you need to fill out and the information you need to give to your old custodian to initiate a transfer or rollover.

Account Administration and Reporting

Your custodian should handle annual tax filing and reporting requirements with the IRS for you. However, you’re responsible for keeping track of contributions and investment choices, as well as adhering to self-directed SEP IRA rules to maintain the account’s tax-advantaged status.

The IRS outlines the prohibited transactions you must avoid. Failing to follow self-directed IRA rules would cause you to lose their associated tax benefits, including the ability to deduct contributions and tax-deferred growth.

Examples of prohibited transitions include:

•   Borrowing money from your self-directed IRA

•   Selling property to it

•   Using your IRA assets as collateral for a loan

•   Using money from your IRA to buy property for personal use

The rules surrounding self directed IRAs and prohibited transactions are complex. You may benefit from talking to a financial advisor so you know what to avoid when managing your account.

Investment Options in a Self-Directed SEP IRA

What can you invest in with a self directed SEP account? Besides mutual funds, ETFs, stocks, and bonds, there are typically a range of alternative investments, such as:

•   Real estate, including land

•   Precious metals

•   Private equity

•   Private debt

•   Cryptocurrency

•   Tax liens

•   Commodities

•   Mineral rights or land rights

•   Bonds

•   Convertible notes

•   Venture capital

There are, however, a few things you can’t use a self-directed IRA to invest in. The IRS does not allow you to use them to invest in life insurance or anything that’s considered a collectible, such as artwork, antiques, gems, stamps, coins, or fine wines.

The Takeaway

Self-directed SEP IRA accounts may help you build retirement wealth while enjoying some tax advantages along the way. Once you set up an investment account for your SEP IRA, you have the freedom to choose what you’d like to invest in and how you’d like to shape your investment strategy. Just be sure to thoroughly research any investment options you’re considering, and make sure you’re comfortable with the risk involved.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Easily manage your retirement savings with a SoFi IRA.

FAQ

Who can open a self-directed SEP IRA?

Self-directed SEP IRAs are available to small businesses of all sizes, including sole proprietorships. If you’re self-employed, you may choose to invest for retirement through a self- directed SEP IRA instead of a solo 401(k) or SIMPLE IRA.

What are the contribution limits for a self-directed SEP IRA?

The annual contribution limit for a self-directed SEP IRA in 2025 is the lesser of 25% of an employee’s compensation or $70,000. In 2026, the contribution limit is the lesser of 25% or $72,000. If you’re self-employed, you’ll need to use a special formula to determine how much of your contributions you can deduct.

Are there any prohibited investments in a self-directed SEP IRA?

The IRS prohibits transactions that involve “self-dealing,” meaning using your self-directed SEP IRA in a way that gives you a personal financial benefit rather than benefiting the IRA (such as using the IRA to buy a property you already own). You’re also barred from using a self-directed SEP IRA to invest in life insurance and collectibles, such as artwork, antiques, fine wines, or rare coins.

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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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