Can SEP Contributions Be Made Into a Traditional IRA?

SEPs are simplified employee pension plans, which are employer-sponsored retirement plans. Traditional IRAs are individually managed retirement plans.

Contributions

SEP contributions are made by the employer into a SEP IRA. Traditional IRAs have contributions made by the individual, rather than the employer.

Function

An SEP functions similarly to a traditional IRA in that the contributions do not count as taxable income and the money grows tax deferred until it is withdrawn at retirement.

Rollovers

Though the SEP contributions cannot be put directly into a traditional IRA, they can be rolled over at any time to a traditional IRA. To rollover the money, take a withdrawal of the amount you want to rollover and redeposit it into a traditional IRA account within 60 days. You do not pay taxes rolled into a traditional IRA when you make the rollover.

Benefits

Converting to a traditional IRA from a SEP IRA may reduce administrative and transaction fees. Also, with a traditional IRA, you have more options for how to invest the money in the account.

Other Considerations

Investopedia suggests considering rolling the SEP IRA into a Roth IRA if you meet the income restrictions because the Roth IRA will offer the benefit of being able to withdraw the money tax free at retirement. However, you will have to pay taxes on the amount you are converting.

References

• IRS: Retirement Plan FAQs Regarding SEPs
• U.S. Department of Labor: SEP Retirement Plans for Small Business
• Investopedia: Can I Roll My SEP IRA Into a Traditional IRA?