A SEP IRA through Bank of America is a retirement savings plan designed for self-employed individuals and small business owners who want to make tax-deductible contributions to their retirement. Contributions are made by the employer, not the employee, and are capped at 25% of compensation or $69,000 in 2024, whichever is less.
SEP IRAs are governed by IRS rules under Section 408(k) of the Internal Revenue Code. They allow business owners to set aside funds for retirement while reducing taxable income. Bank of America offers access to this plan through its brokerage services, enabling users to invest contributions in mutual funds, ETFs, stocks, and bonds.
Unlike traditional or Roth IRAs, which require individual contributions, a SEP IRA is funded entirely by the employer. This makes it ideal for sole proprietors, freelancers, and small business owners who want a low-maintenance, high-contribution option. The plan is not available to employees of larger corporations unless they are also owners.
When a self-employed individual opens a SEP IRA with Bank of America, they designate themselves as the employer. The account is established through Bank of America's brokerage platform, which handles the administrative setup and investment management.
Each year, the account holder calculates the maximum allowable contribution based on net earnings from self-employment. For 2024, the limit is $69,000, or 25% of compensation, whichever is lower. The contribution is deducted from business income before calculating federal income tax, lowering the tax bill.
For example, if a freelance graphic designer earned $276,000 in 2024 and is eligible for the full deduction, they can contribute $69,000 ($276,000 × 25%) to their SEP IRA. That amount reduces their taxable income and grows tax-deferred until withdrawal after age 59½.
To qualify for a SEP IRA with Bank of America, the individual must be self-employed or operate a small business. Employees of companies with more than 100 workers are generally not eligible unless they are owners or partners.
There are no annual filing requirements for the SEP IRA itself. However, the business must file Form 5305-SEP with the IRS if using a written agreement to establish the plan. Bank of America provides templates and guidance to help clients meet this requirement.
Contributions must be made by the tax-filing deadline, including extensions. For 2024 returns filed by April 15, 2025, contributions can be made by that date. If the deadline falls on a weekend or holiday, the deadline extends to the next business day.
Bank of America's SEP IRA platform supports many investment options. Account holders can choose from over 1,500 mutual funds, exchange-traded funds (ETFs), and individual stocks.
The platform includes tools for portfolio rebalancing, risk assessment, and asset allocation. Users can set up automatic contributions or make one-time deposits. All investments grow tax-deferred until withdrawal.
| Investment Type | Minimum Contribution | Annual Fee | Examples |
|---|---|---|---|
| Mutual Funds | $100 | 0.05% - 1.5% | Vanguard Total Stock Market Index Fund, Fidelity Contrafund |
| ETFs | $1 | 0.03% - 0.5% | SPDR S&P 500 ETF, iShares MSCI Emerging Markets ETF |
| Individual Stocks | $1 | Commission-free trading | Apple, Amazon, Tesla |
Account holders can also transfer existing retirement assets into a SEP IRA via a direct rollover. This process avoids taxes and penalties associated with distributions.
Many people assume a SEP IRA is only for large businesses. This is incorrect. The IRS allows any self-employed individual or small business owner to open a SEP IRA regardless of size. A freelancer earning $50,000 annually can contribute up to $12,500 (25% of $50,000).
Another misconception is that SEP IRAs offer tax-free withdrawals. They do not. Withdrawals are taxed as ordinary income after age 59½. Early withdrawals before age 59½ incur a 10% penalty unless an exception applies.
A key distinction: SEP IRAs do not allow employee contributions. Only the employer can fund the account. This differs from SIMPLE IRAs, which permit both employer and employee contributions, and traditional IRAs, which rely solely on individual contributions.
Opening a SEP IRA with Bank of America involves four steps:
I opened a SEP IRA with Bank of America in 2023 after selling my consulting business. The process took 22 minutes. I uploaded my 2022 Schedule C, selected a target-date fund, and contributed $35,000. The funds were invested within 24 hours.
After setup, the account appears in your portfolio dashboard. You can view performance, adjust allocations, and schedule future contributions. Bank of America also sends quarterly statements and annual tax forms (Form 5498) reporting contributions.
SEP IRAs differ from other retirement plans in structure and benefit scope.
| Feature | SEP IRA | SIMPLE IRA | Traditional IRA |
|---|---|---|---|
| Max Contribution (2024) | $69,000 (employer-only) | $16,500 (employee) + $3,500 (employer match) | $7,000 (individual) |
| Funding Source | Employer only | Employee + employer match | Individual |
| Eligibility | Self-employed, small business owners | Businesses with ≤100 employees | Anyone with earned income |
| Setup Time | Under 30 minutes | 1-2 weeks | Immediate |
For high-earning self-employed individuals, the SEP IRA offers the highest contribution limit. A sole proprietor making $300,000 can contribute $75,000-more than double the $30,000 max allowed in a SIMPLE IRA.
Contributions to a SEP IRA are deductible as a business expense. This lowers adjusted gross income (AGI), potentially reducing eligibility for certain tax credits and phase-outs.
IRS Publication 560 (2024) states that employers must treat all eligible employees equally. If a business owner uses a SEP IRA, they must offer the same contribution percentage to all employees who work at least 1,000 hours per year and have completed three years of service.
For example, if a business owner contributes 15% of salary to their own SEP IRA, they must also contribute 15% to each eligible employee. Failure to comply may result in disqualification of the plan and loss of tax benefits.
While Bank of America does not charge a fee to open a SEP IRA, investment fees apply. These vary by fund and can reduce long-term returns. Always review expense ratios before selecting an investment.
SEP IRAs through Bank of America provide a useful tool for self-employed individuals to build wealth, reduce taxes, and secure retirement. With contribution limits rising to $69,000 in 2024, this plan remains one of the most effective options for high-earning freelancers and small business owners.