ETF vs index fund inside a SEP-IRA

Up to 25 percent of compensation, capped at the annual dollar limit indexed by the IRS. For 2026, the IRS publishes the cap (Notice 2024-80 sets recent figures); confirm the current-year cap on the IRS retirement plan limits page. The 25 percent rule for self-employed individuals is computed on net earnings minus half of self-employment tax minus the SEP contribution itself, which produces an effective rate around 20 percent of net Schedule C income.

Yes. The SEP-IRA contribution does not count against the standard $7,000 Traditional IRA contribution limit. You can contribute the full SEP-IRA amount as employer (self-employed) and a separate $7,000 (or $8,000 with catch-up) as the standard IRA contribution in the same year, subject to deductibility rules in IRS Pub 590-A.

No. The SEP-IRA wrapper itself shelters all distributions, dividends, and capital gains from current-year tax. The wrapper choice (ETF or mutual fund) matters only for convenience, transaction cost, and brokerage portability. Identical reasoning to a Traditional IRA. See the Traditional IRA guide for the full logic.

For sole proprietors with no employees, a Solo 401(k) typically allows higher total contributions at the same income level because it permits both employee elective deferral and employer profit sharing. SEP-IRAs are simpler administratively (no annual Form 5500-EZ filing below $250,000 in assets, no separate employee-versus-employer accounting). For solo self-employed who max out the Solo 401(k) employee deferral, the Solo 401(k) is usually better. For self-employed who want minimum administrative overhead and contribute under the Solo 401(k) employee-deferral cap, the SEP-IRA is fine.

Yes. SEP-IRA balances can be Roth-converted on the same terms as Traditional IRA balances per IRS Pub 590-A. The converted amount is taxed as ordinary income in the conversion year. There is no income limit on conversions. Many self-employed contributors do this systematically when their business income is lower than their expected retirement income. Consult a CPA before executing because the tax impact in the conversion year can be substantial.

Most major brokerages: Vanguard, Fidelity, Schwab, E*TRADE, Merrill Edge, TD Ameritrade. The IRS Form 5305-SEP is the standard plan adoption document, used by all the major brokerages. Account opening typically takes 1 to 2 weeks. Once open, the investment account behaves like any other Traditional IRA at the same brokerage, with the same self-directed access to ETFs and mutual funds.