Retirement Planning for Athletes: Roth IRAs, SEP IRAs and the Long Game
Athletes can earn money differently than most people.
Most workers build income over a 30- or 40-year career. Many athletes have a much shorter window where their income can be high, unpredictable or tied to performance, endorsements and opportunity.
That is why retirement planning should not wait until football is over.
For athletes earning NIL income, endorsement income, appearance fees, camp money or other off-field income, the right retirement plan can help create long-term security after the playing window closes.
Why Athletes Need a Different Plan
Athlete income can come early.
It can also change quickly.
A player may earn meaningful money in college, through NIL, or early in a professional career. But that income may not last forever. Injuries, roster changes, transfers, contracts and life after football can all change the financial picture.
The goal is not just to make money.
The goal is to keep options open long after the game ends.
SEP IRA
A SEP IRA can be a powerful tool for athletes with self-employment or independent contractor income.
That may include:
- NIL deals
- Endorsement contracts
- Appearance fees
- Speaking engagements
- Camps and clinics
- Social media partnerships
When income is reported on a Form 1099, a SEP IRA may allow an athlete to save much more than a traditional IRA or Roth IRA.
The advantage is contribution capacity. SEP IRAs can allow larger annual contributions and may reduce current taxable income.
The tradeoff is that withdrawals are taxed in retirement, required minimum distributions may apply later in life and contributions generally need to come from business earnings.
Traditional IRA
A Traditional IRA allows an athlete to contribute money that may be tax-deductible today.
The money can grow tax-deferred, meaning taxes are not paid on dividends, interest or capital gains while the funds remain in the account.
This can be useful for athletes who are early in their careers, athletes not yet earning top-level money, former athletes transitioning into coaching or business, or athletes looking for an additional retirement account.
The tradeoff is that withdrawals are taxed as ordinary income later, contribution limits are lower and required minimum distributions apply later in life.
Roth IRA
A Roth IRA works differently.
Contributions are made with after-tax dollars, but qualified withdrawals in retirement can be tax-free.
For younger athletes, this can be valuable because money may have decades to grow. It can also create a future source of tax-free retirement income.
The challenge is income eligibility. Higher-earning athletes may exceed direct Roth IRA contribution limits.
That is where some families may hear about a backdoor Roth IRA strategy.
Backdoor Roth IRA
A Backdoor Roth IRA is not a separate retirement account.
It is a strategy where someone makes a non-deductible contribution to a Traditional IRA and then converts that money to a Roth IRA.
When done correctly, the money can end up inside a Roth IRA, where future growth and qualified withdrawals may be tax-free.
But there are important tax issues.
The biggest is the pro-rata rule. If an athlete already has pre-tax Traditional IRA assets, SEP IRA balances or rollover money, part of the Roth conversion may be taxable.
That is why this strategy should not be done casually.
Athletes should work with a CPA, financial advisor and business manager before using a backdoor Roth strategy.
The Family Takeaway
Athletes have retirement options.
The right structure may include a 401(k), Roth IRA, Traditional IRA, SEP IRA, backdoor Roth strategy or taxable brokerage account, depending on income, eligibility and long-term goals.
The important thing is to start early.
A short earning window can still build long-term security if the money is handled with a plan.
This section is educational and should not be read as financial, legal or tax advice. Families should consult qualified professionals for advice specific to their situation.
For questions, contact Ed Castellanos at The Seiler Group of Raymond James at ed.castellanos@raymondjames.com.