How to Roll a SEP IRA Into a Traditional IRA

A SEP IRA is a version of an Individual Retirement Account (IRA) that's used by self-employed business owners to provide retirement benefits for themselves and any employees they may have. Like a 401(k) plan, a SEP IRA is funded with pre-tax dollars, which are taxed at ordinary income rates when they are withdrawn at retirement (typically after the account holder has reached 59 ½ years of age).
A SEP IRA is structured like a traditional IRA except that employers are allowed to make contributions to the accounts of their employees. Because of this structural similarity, converting a SEP IRA to a traditional IRA is fairly straightforward.

Difficulty: Moderately Easy

Instructions

1. Obtain IRS Form 1099-R and an IRA rollover form from the broker who handles your SEP IRA account (see Resources section).

2. Complete Form 1099-R, carefully following the instructions on the form. Enter the amount you contributed to your IRA on line 1, and enter the amount your employer or company contributed on line 5. Mail the completed copy of Form 1099-R to the IRS office in your area.

3. Complete the IRA rollover form by following the instructions on the form. Forms will differ slightly by broker, but you will have to enter the current balance of your SEP IRA, designate that your current IRA account is a SEP IRA and acknowledge that you wish to roll the SEP IRA into a traditional IRA account. Mail or email the completed rollover form to your broker.

4. Call your broker approximately one week after submitting the completed IRA rollover form to confirm that the rollover transaction has occurred.

Tips & Warnings

• You could consider rolling a SEP IRA into a 401(k) account, which would allow employers to make contributions.
• Once you convert a SEP IRA to a traditional IRA, your employer or company will not be able to make contributions to your retirement account.

References

• Investopedia - SEP IRAs
• IRS - Retirement Plans FAQs regarding IRAs

Resources

• Midas Funds - IRAs
• IRS Form 1099-R
• FISN - IRA Rollover Forms