Rules & Regulations for a SEP IRA Rollover

by Mark Kennan

SEP stands for simplified employee pension plan, which some employers offer their employees as a retirement-savings plan. The Internal Revenue Service permits you to roll the money into another qualified retirement account. With a rollover, you take a distribution from your SEP IRA and then within 60 days you deposit it into a qualifying retirement account.

Eligible Receiving Accounts

The IRS prohibits you from rolling money from a SEP IRA into a designated Roth account, such as a Roth 401k or Roth 403b plan, or into a Simple IRA. However, a plethora of options exist including traditional IRAs, Roth IRAs, another SEP IRA, 401k plans, 403b plans or a 457b government plan. Once you take the money out of the SEP IRA, you have 60 days to redeposit it in a qualifying account. You also can only roll over money from your account once per 12-month period.

Taxes on SEP Rollovers

When you roll the money from the SEP IRA into another tax-deferred account, you do not owe any extra taxes because you are not changing the tax benefits of the account. However, if you roll over the money from a SEP IRA to a Roth IRA, you move the money to an after-tax account so you have to count the money as part of your taxable income for the year. In exchange, you get to take qualified distributions without paying taxes from the Roth IRA.

Tax Reporting

All SEP IRA rollovers must appear on your income taxes even if they do not result in any additional income taxes. For example, if you roll money from a SEP IRA to a traditional IRA, you have to report the rollover on your taxes even though you do not have any extra income tax liability. If you had any federal income taxes withheld from your rollover, include that amount as part of your federal taxes withheld so you can get that money refunded.


When you take a rollover distribution from your SEP IRA, your financial institution usually withholds money from the distribution in case you fail to complete your rollover. For example, your financial institution may withhold 10 percent, so if you wanted to roll over $25,000, you would only receive $22,500. However, you would still be responsible for redepositing $25,000 to complete the rollover. If you do not have the extra cash to complete the rollover, consider using a transfer instead of a rollover. With a transfer, the money goes right from the SEP IRA to the other account rather than to you first.

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