Fidelity SEP IRA Review: A Close Look at the Pros and Cons


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Retirement Structuring

The retirement crisis in the US is no longer a surprise for most people. We have seen plenty of reports, analyses, and studies revealing the alarming state of our retirement savings. As a retirement plan provider that specializes in defined-benefit plans, we often hear concerns about retirement savings from small business owners.

However, more often than not, our discussions open with a SEP IRA. SEP IRAs have gained popularity because of their low maintenance cost, administration responsibilities, and flexibility. We are going to discuss Fidelity’s SEP IRA in this post and find out how it is different from a defined benefit plan.

Does Fidelity Offer a SEP IRA?

Fidelity is a leading name in the American financial industry, responsible for managing assets worth over $2.45 trillion. The investment firm has evolved from a mutual-fund house to a diversified investment firm, providing brokerage services, multiple investment products, and a competitive pricing structure.

Fidelity’s SEP IRA excels in providing easy account set up, maintenance, and investment platform. If you’re self-employed, run a small business, or earn professional/freelance income, you’re eligible for opening a SEP IRA.

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A SEP IRA is easy to set up and allows you to contribute up to 25% of your employee’s salary in retirement contributions, up to $57,000 for 2020 and $56,000 for 2019. Any funds in the SEP IRA enjoy tax-deferred growth. There are no annual contribution obligations, providing you sufficient flexibility in managing retirement planning for your employees. As an employer, you must understand that your contributions are tax-deductible, which means you can lower your taxable income while providing financial security to your team.

Important features of Fidelity SEP IRA

Fidelity offers zero-fee SEP IRAs, which means you don’t have to pay set up, maintenance, or closing cost for a Fidelity SEP IRA. Also, there are no trading charges for online US stock, certain ETFs, and options trading.

  • Huge portfolio of mutual funds and investment products: As a mutual fund house, Fidelity offers a collection of over 10,000 mutual funds, including their own and third-party funds. You can choose out of 3,700 low-expense funds. Additionally, you can select among other investment products, such as stocks, ETFs, options, new and secondary market bonds, CDs, and additional options.
  • Zero funds with nil management fees: Fidelity is one of the first investment management companies to launch a zero-fee index fund, including Fidelity ZERO International Index Fund and Fidelity ZERO Total Market Index Fund. It’ll help you extend maximum investment benefits to the plan participants.
  • Premium research and trading module: Fidelity has a comprehensive trading platform, allowing investors to track market movements, use technical indicators and analysis tools, and a research section indicating leading investment opportunities. If you want to manage your SEP IRA actively, you can use Fidelity’s Active market pro platform for customized trading experience.
  • Low commission and transaction charges: You can trade or invest in Fidelity mutual funds for no extra cost. The fees for stocks and ETF trading are nominal ($4.95 per trade), along with an option to trade zero-commission ETFs. There are no additional charges or fees for its brokerage account.
  • Fidelity Go robo-advisor: You can enroll for Fidelity Go, a robo-advisor from Fidelity, to automatically manage and track your investments. Fidelity Go has an annual management fee of 0.35%. It rebalances your portfolio, provides target tracking and comes with no minimum investment amount (you’ll need $10 to start).
What is the difference between a cash balance plan and a defined benefit plan?

Fidelity offers features such as mobile check deposit that allows you to deposit a check your mobile’s camera. Its customer support is available to assist in case of any issues.

How to open a Fidelity SEP IRA

Opening a Fidelity SEP IRA is quite simple. But before moving forward with your SEP IRA, here is what you must analyze.

  • Is SEP IRA the right retirement plan for you?
  • How much do you plan to contribute towards your retirement? SEP IRAs are ideal for moderate contributions. If you want to contribute a larger amount, cash balance plans, or other types of defined-benefit plans may work better.

Here is what you need to do to open a SEP IRA with Fidelity:

  • Enter your personal information for verification purposes.
  • Read the plan document and keep it for your records.
  • Set up account features and list your preferences, such as whether you’d like to receive plan documents electronically.
  • The next step involves reviewing your preferences, customer agreement, and the terms & conditions of the plan.
  • Once your account is active, initiate fund transfers or contributions.
  • Next, all your qualified employees must open individual SEP IRAs with Fidelity.

Choosing between a defined benefit plan and SEP IRA

SEP IRAs provide easy to maintain, low-cost retirement solution for small business owners. You can even skip contributions if the profits aren’t high enough in a particular year. Additionally, SEP IRAs offer higher contribution limits in comparison to traditional IRAs, making them an excellent choice.

Sharpened colored pencils

With that being said, if you’re a small business owner who is rather trying to boost his retirement savings, a defined-benefit plan might work better for you. Depending on your age and preferences, you can contribute up to $187,500 in a combo defined-benefit plan. As a provider of defined-benefits plans, Emparion helps its customers set up pension plans, cash balance plans, and even combo plans to boost their retirement contributions while minimizing their taxable income.

Yes, you must take the required minimum distributions once you reach age 72, as per the SECURE Act. In case you turned 70 before July 1, 2019, you should have started your distributions at age 70½.

How to set up a Fidelity SEP IRA

  • Determine if a SEP is right for you. A SEP might not offer you sizable contributions. You could make larger tax deductible contributions with a defined benefit plan.
  • Take a close look at the online portal. All investment portals are different. Choose one that works for you and has all the bells and whistles you are looking for.
  • Review and approve the agreement. Fidelity has an excellent customer service center that can help set-up and sign the plan document.
  • Streamline your investment profile. Determine upfront your investment mix and diversification strategy. Make sure this is consistent with your financial goals.
  • Plan for the deadline. Don’t miss the deadline. The plan should be funded before the tax return due date (including extensions).

Fidelity SEP IRA Review

Searching for the best retirement account may not be your favorite activity, especially when you have a business to run. However, choosing the right retirement vehicle will ensure that you’ll have sufficient retirement savings for a comfortable retirement.

If you’re not sure whether to choose a SEP IRA or a cash balance plan, give us a call today. We’ll be happy to assist you in the process.

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Paul Sundin

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