If you’re someone who qualifies for a Simplified Employer Pension Plans (SEP IRA), you’ll definitely want to take full advantage of this SEP IRA rollover. With a traditional IRA rollover account, you’ll be subject to certain limitations on how much you can contribute to the SEP IRA rollover account each year – currently; this amount is only $5,000. However, if you have SEP IRA accounts, you can contribute up to 25% of your yearly income with an overall cap of $49,000/year without having to pay taxes.
If you already have a traditional IRA and are looking to complete an SEP IRA rollover, you’ll first want to make sure you understand all of the tax implications so that you can get the most out of your retirement nest egg. For starters, know that there are two different ways that you can transfer money between IRA accounts. The first option is known as an indirect transfer. When you elect this type of transfer, you’ll receive a check from your current IRA plan for roughly 80% of the funds. The remaining 20% is held out for the taxes you may incur if you don’t meet the IRS’s transfer rules – namely, that you have only sixty days to place the money into an SEP IRA account. After that, the 20% mandatory withholding will be released.
On the other hand, if you decide to do a direct SEP IRA rollover, then you’ll establish the SEP IRA account first and then petition the old IRA account to transfer the funds. This transfer will occur directly between the two accounts and won’t require any active participation on your end, other than the establishment of the account. This means that you won’t have to worry about the 20% being withheld or any taxes being taken out. This is usually the way that people elect to complete SEP IRA rollovers, so that they don’t have to worry later about the possible tax implications.
If you’re considering using an SEP IRA rollover on an existing Roth IRA account, you’ll probably want to rethink this. A Roth IRA is a particular type of retirement account that’s established with monies that have already been taxed, so that later when you withdraw the funds, you won’t have to pay taxes. However, if you transfer the funds from the Roth IRA into the SEP IRA, they will be taxed again when they’re withdrawn because they’re being removed from an IRA account that’s set up as a tax deferred structure. In this case, you may just want to establish an SEP IRA account for future contributions and leave any existing funds in your Roth IRA alone.
If you’re eligible for an SEP IRA rollover from a traditional IRA account, it’s definitely worth further investigation as to whether or not this type of account can be used to help you meet your retirement goals. This way, you can ensure that you’re able to contribute the maximum amount possible to your retirement accounts and fully enjoy your life whenever you decide to stop working.