SEP IRA Rules Every Federal and Postal Worker Should Know
Are you a federal or postal worker wondering if a SEP IRA could work alongside your TSP and FERS benefits? You’re not alone. Many hardworking employees just like you want to know how to stretch their retirement savings, save on taxes, and create extra streams of income. Let’s break down SEP IRA rules in simple terms that make sense—because you deserve to retire well and worry-free.
What Is a SEP IRA?
A SEP IRA stands for Simplified Employee Pension Individual Retirement Arrangement. It’s mainly used by small business owners and the self-employed. But here’s the good news: if you have a side hustle, a consulting job, or freelance on the side (yes, even Etsy counts!), you might qualify.
You contribute to a SEP IRA through your business income, and it grows tax-deferred. That means you won’t pay taxes on the money until you retire and start pulling it out. It’s a powerful way to grow your savings if you’re already maxing out your TSP or want to create an extra retirement bucket.
Who Can Use a SEP IRA?
To use a SEP IRA, you must:
- Earn income from self-employment (even part-time gigs count).
- Be at least 21 years old.
- Have worked in that business for at least three of the last five years.
If you’re a federal or postal employee with a part-time business or extra income outside your federal job, you could be eligible. You don’t have to give up your FERS or TSP benefits—this is in addition to what you already have.
SEP IRA Contribution Limits
This is where things get exciting. A SEP IRA allows much larger contributions than a regular IRA.
For 2024, the rules are:
- You can contribute up to 25% of your net self-employment income.
- The maximum dollar limit is $69,000.
That’s right. Compared to the $6,500 limit on a traditional IRA, a SEP IRA is a big upgrade if you’re earning enough outside your federal job. And the money you contribute is tax-deductible, lowering what you owe the IRS.
SEP IRA vs. TSP: What’s the Difference?
Your Thrift Savings Plan (TSP) is tied to your federal job. You and your agency contribute, and there are set rules around it. A SEP IRA is something you set up yourself, based on self-employment income.
You can have both. The SEP IRA doesn’t reduce what you can contribute to your TSP. This gives you more room to build wealth faster and reduce taxes across more than one account.
Rules to Know (and Follow!)
Here are the most important SEP IRA rules you should keep in mind:
- You must open and fund the SEP IRA by your tax filing deadline (including extensions).
- Only the employer contributes. If you’re self-employed, you are both the employer and employee.
- You must contribute the same percentage for all eligible employees if you have staff in your side business.
- Withdrawals before age 59½ are subject to a 10% penalty plus income tax.
We get it—rules can feel overwhelming. But once you know what to look out for, a SEP IRA becomes a simple and smart tool.
How a SEP IRA Fits into Your Retirement Plan
At The Benefit Coordinators, we help federal employees build personalized retirement strategies. A SEP IRA is especially helpful if:
- You plan to retire early and need a bridge account.
- You want to lower your taxes today.
- You’re building wealth to leave a legacy.
It’s flexible. You don’t have to contribute every year, and you can change the amount based on how well your side income performs.
Quick SEP IRA Checklist for Federal Workers
If you answered YES to even one, a SEP IRA may be worth exploring.
Trusted Resources for SEP IRA Rules
To make sure you have the most accurate info, check out:
These are helpful starting points, but remember: your situation is unique.
Final Thoughts
You don’t have to be an expert to build a strong retirement plan. You just need the right tools and a little help choosing what fits you. SEP IRAs can be a great way to add flexibility, reduce taxes, and stack more wealth alongside your federal benefits.
Let’s make sure your money is working for you in every way possible.
Ready to talk about your ideal retirement income plan? Book a free Discovery Call today and let’s build a plan you feel confident about.
