Usually, the administration of this type of retirement account is very straightforward.  However, there are some special considerations for the self-employed – namely, there are contribution limits you’ll need to be aware of.  In the simplest case, the contribution limit for the self-employed is just over 18.5% of annual income.

This number may change in light of two issues – when the FICA tax is taken into consideration and with a reduced rate of tax.  In the case of the FICA tax, all contribution limits are computed from net profit adjusted for the deduction for self-employed the tax.  Excluding any limits, this is half of the 15.3% FICA tax levied on the net earnings.  These net earnings are 92.35% of the net profit – all of which must be kept in mind when you do the calculations for your SEP IRA.

After the FICA taxes have been handled, you’ll need to consider the reduced rate of tax.  When it comes to SEP IRAs, there’s a 25% limit that applies to wages, not to the net profit.  This is especially important when the business is a sole proprietorship.  In this case, the employee\owner must consider his or her own wages and make an SEP IRA contribution which is limited to the 25% previously mentioned.

Although these two issues may seem complicated, don’t let them deter you from initiating an SEP IRA rollover, as this type of financial transfer does offer several significant advantages for the self-employed.  But before you get started, be aware that there are two basic kinds of rollovers – direct and indirect SEP IRA rollovers.  An indirect rollover occurs when money from an old retirement account is placed directly into the account holder’s hands, either by check or money transfer.

Be very careful with indirect SEP IRA rollovers.  If the money comes into your hands – even if you have every intention of placing it back into a qualified retirement account – you run the risk of incurring taxes and penalties.  Remember, the IRS has no sense of humor.  If the money stays in your hands for one day longer than the 60 day window given to redeposit funds, they’ll classify the transaction as a cash withdrawal, triggering a number of taxes and penalties. In general, it just makes more sense to perform a direct SEP IRA rollover whenever you’re moving money into or out of SEP IRA accounts.

Fortunately, it’s very easy to perform a direct SEP IRA rollover.  All you have to do is contact the manager of the account you want the money moved into and tell him or her that you’d like to initiate a direct rollover from your old IRA.  Always be sure to use that exact term – “direct rollover.”  This begins a legally defined process wherein your money will be sent directly from one account manager to the other, without ever entering your hands.  And if it never comes into your hands, the IRS won’t consider your SEP IRA a taxable event and the tax-deferred status of your money will be maintained.

Is it possible to Rollover a SEP IRA to a Roth IRA?

Yes. This particular rollover SEP IRA to Roth IRA can make a lot of sense, because it allows you to invest more than the maximum allowed per year in a Roth. Let’s say that your income would allow you to contribute $12,400 a year to a SEP IRA. You can make that deposit and then, as long as your total income is less than $100,000 that year, you can rollover that SEP IRA to a Roth IRA. Essentially, you will have managed to put a great deal more than the annual limit into a Roth. You will have to pay taxes on the $12,400 after you convert, but you can deduct that same $12,400 from your income as SEP IRA deduction. If you are self-employed, consult a tax specialist to see how much you could contribute to a SEP IRA, and consider making this rollover.

For an employer, what is the downside of a SEP IRA?

If you fund a SEP for yourself and have employees who have worked for you for three of the past five years, you also required to fund their SEPs. The money in these accounts vests automatically, and if your employees leave tomorrow, they will be able to take that money with them. Wither a SEP IRA, employees are 100 percent vested at all times.

Can I have a SEP  IRA and a Roth IRA?

Yes, you have both a Roth IRA and SEP IRA if you meet the income requirements.

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.

For starters, be aware that “SEP IRA” is short for Simplified Employer Pension Plans, and that they are retirement plans that are specifically geared toward those people who are self-employed or own their own businesses.  With this type of account, you’re allowed make contributions into your account (and even the accounts of your employees) up to a certain amount each year, tax free.

The SEP IRA contribution amount, however, does not apply to the rollover amount if you choose to transfer your funds from a traditional IRA.  These funds can be moved in a single transaction when you complete a SEP IRA rollover and, if they’re done in a direct transfer, you won’t have to worry about paying taxes on any rolled over funds.  If you don’t complete a direct SEP IRA rollover, then a standard minimum 20% fee will be withheld so that taxes can be paid if you do not deposit the funds into the SEP IRA within a sixty day period (known as an indirect rollover).

You may consider leaving your current retirement funds where they are currently, but the truth is that if you’re eligible for an SEP IRA, you’ll want to take full advantage of the benefits associated with this kind of retirement savings plan.  The reason for this is that traditional IRA accounts have a yearly contribution cap of $5,000.  SEP IRA contributions amounts, on the other hand, are significantly different – in fact, you’re allowed to contribute up to 25% of your yearly income (up to a maximum of $49,000) to the account, tax free.  For those people who are self employed, this can add up to a significant contribution for their retirement savings.

On the other hand, if you have an established Roth IRA, then it may not be feasible for you to transfer your funds into an SEP IRA.  The reason for this is that you’ve already paid taxes on the Roth IRA amount, and if you transfer them into an SEP IRA, you could potentially have to pay taxes on the money again when it’s withdrawn.  This would be counterproductive to your original investment and probably not something that will benefit you in the long run.  If this is the case for you, you’d probably want to leave the funds that you already have in the Roth IRA there and set up a separate SEP IRA account instead.

If you’re looking to transfer your funds into an SEP IRA rollover account, you’ll need to make sure that you have the new account set up first so that you can complete a direct rollover and avoid the need for any tax money to be withheld.  It may be difficult to understand all of the SEP IRA rollover rules and regulations, so if you have any concerns, contact your financial advisor or tax consultant for further information.

While it seems simplistic, one of the most common mistakes that investors make is that they request a rollover before the target IRA (the account that’s receiving the funds from your SEP IRA rollover) is ready to accept the money from the original account. For example, if your new IRA is part of your new employer’s benefits package, be aware that it isn’t automatically ready to receive funds from the moment you start working. There may be a delay of a few weeks – or even a few pay periods, depending on your employer.

Fortunately, the first thing you’ll need to do to set up your SEP IRA rollover is to call the manager of the new target IRA. In addition to initiating the transfer, they’ll also be able to tell you if the account is ready to receive the funds or, if not, when it will be ready for your rollover funds.

While you have the manager on the phone, ask questions about the type of account you’ve opened. There are rules as to what types of IRAs can receive your SEP IRA rollover that you’ll need to be aware of. Generally, there’s little problem transferring funds between the same kind of IRAs – going from one SEP IRA to another SEP IRA should be no problem. The manager of the new fund will be able to advise you about any other exceptions that may prevent you from rolling money from your SEP IRA accounts to the new account.

Now, here comes the important part. Once you know that the target IRA is active and ready to receive the rollover, and that there are no restrictions for rolling funds out of your SEP IRA, then you need to request a “direct rollover.” Be sure to use those exact terms. This will ensure that the funds will move directly from one account to another.

In this type of transfer, the money will never come into your hands. If the money does come to you, the entire situation will change. When the account holder receives the balance of the SEP IRA accounts as a check, it’s classified differently than a direct rollover and is immediately subject to withholding. In addition, this type of transfer opens the door to a tax burden for that fiscal period. Finally, if you hold on to the money instead of reinvesting it into a qualified retirement savings plan, it will be considered income and will be taxed as such.

Fortunately, a direct rollover avoids all of these problems. By asking the manager of the target fund to perform a “direct SEP IRA rollover,” you legally bind him or her to use that particular financial tool to move your money. In this way, the tax deferred status of your investments is maintained, enabling your funds to continue growing undisturbed for your retirement.

An SEP IRA, also known as a Simplified Employee Pension Individual Retirement Account, is a specific type of IRA (Individual Retirement Account).  In general, SEP IRAs are used by businesses of all sizes in order to provide retirement benefits for both the business owners and any or all of their employees.  Significantly, there are no substantial costs for administering these plans when this tool is used by the self-employed that have no employees.  However, if the business owner does have employees, all employees have to receive the same benefits under this type of plan.  Since SEP accounts are treated just like a normal IRA, funds can be invested the same way.

All contributions to an SEP IRA are regarded as part of a profit-sharing plan. In the case of employees, the employer has the option of contributing up to 25 percent of the employee’s wages to the account.  For example, if an employee at the company earns $100,000 in wages, the employer could contribute as much as to $25,000 to the account.  The total contribution to an SEP-IRA cannot exceed the lesser of 25 percent of income (20 percent for self-employed individuals before a self-employed tax deduction) or $49,000 (for fiscal year 2009).

In addition to these rules, there are special considerations for the self employed.  Specifically, the contribution limit for a self-employed person is more complicated to determine than the limit for an average employee.  Disregarding limits for a moment, the contribution maximum typically works out to be approximately 18.6 percent of net profit.  This computation, as well as any special considerations for this case, can be found in IRS Pub 560, Section 5.

If you are an employer who’s invested retirement funds in SEP IRA or an employee who received employer contributions through this retirement vehicle, it’s easy to see what the benefits of this account structure are.  As an employer, the SEP IRA provides you with an easy way to establish retirement savings plans for you and your employees without having to go through the hassle of setting up a formal 401k or 403b plan.  And as an employee, you’ll find that the larger SEP IRA contribution limits (as compared to traditional IRAs) enable your retirement savings to grow at a faster rate than they would by investing on your own.

However, these benefits don’t mean that you’ll always want to keep your money in the employer-selected SEP IRA.  If you leave your job, you may want to consider an SEP IRA rollover to a privately held IRA account.  A traditional IRA, for example, may offer you a wider range of investment options than were previously available in your employer’s SEP IRA.  Access to these new options could make a significant difference in the growth of your portfolio.  In addition, if your employer’s SEP IRA account is managed by a company with a less-than-stellar reputation, you may want to use this opportunity to move your retirement funds to a company you trust.

Of course, you might be surprised to hear that your new account might not accept your money – after all, money is money, right? Well, not exactly.  What you need to know is the tax status of the money in your current SEP IRA. For example, the money may have been taxed already, or the money may be under a tax deferred status. You don’t want to have the IRS tax the same money twice. On the other hand, the IRS isn’t just going to let you have the money without taxing it somehow. SEP IRAs aren’t a way to get tax-free money – they’re a way to defer taxes until a better time for you, and to promote savings and investment, which are both goals that the IRS wants.

If you have a new job, you may have little choice as far as what type of account your new IRA is, but what you need to know is that the IRA that will accept the rollover is usually called a target IRA. If you have the chance to perform an SEP IRA rollover, or have decided that consolidating the funds is a good idea for both long term management and short term gains, pick the type of target IRA that fits best with your original IRA.

A general rule to keep in mind is that like can accept like. For example, if both the old IRA and the new IRA are SEP IRAs, there will be no problem when you perform an SEP IRA rollover.  Your money will retain the same tax status.  In addition, there are other IRA types that can accept the rollover.  Roth IRAs will take rollovers from SEP IRAs, but you’ll have to pay taxes on the contributions.  You can also rollover from a SEP IRA into a traditional IRA or into 457b IRA.  For the 457b to be the target account and accept the rollover, however, there must be a separate account. Finally, be aware that a designated Roth or a Simple IRA cannot accept rollovers from a SEP IRA.

If you have any questions, call the manager of the target IRA, and he or she can advise you as to whether or not the rollover can go through. In any event, you’ll need to talk to that manager anyways, as he or she will be the one to initiate the rollover.

One last thing to keep in mind – be sure to ask for a “direct rollover” when initiating your SEP IRA rollover. Be sure to use this exact term, as this will start a process whereby the funds move directly from one account to another. This way, you will avoid withholding and the tax deferred status of your money will be maintained. This is, after all, why you’re jumping through all these hoops in the first place!

One of the first things you’ll want to make sure you understand is the structure of SEP IRA accounts.  This way, you can make an informed decision about whether or not you want to transfer your funds into one of these plans.  If you have a Roth IRA, you’ll also want to ask about the potential tax implications of an SEP IRA rollover on an account where the taxes have already been paid, as this may lead to problems with future withdrawals and double taxation.  Remember that you can have more than one IRA account, so discuss this with your planner to determine whether or not there are investment vehicles that are a better choice for you than SEP IRAs.

Another question that you’ll want to consider are the SEP IRA limits, as the limits on the amount of money that you can contribute to an SEP IRA are significantly different than those of a traditional IRA account.  In an SEP IRA, you can contribute up to 25% of your income, with a yearly limit of $49,000, while in a traditional IRA, you can only put in a maximum of $5,000 each year.  This is a major difference, so be sure to go over all of the existing SEP IRA rules.  Take the time to learn exactly what the limits and regulations are so that you can get the most out of your retirement savings.

Another consideration to make when you’re considering an SEP IRA rollover is whether you should complete a direct or indirect transfer.  The difference here mainly concerns tax considerations.  When you do a direct transfer to SEP IRA accounts, the money is transferred directly between banks and you won’t need to pay taxes on the money you transfer (as long as the rollover occurs between tax deferred accounts).

However, in an indirect transfer, you receive a check directly from your existing IRA account for about 80% of your former account balance.  This occurs because indirect SEP IRA rollovers have taxes preemptively held out in case the money isn’t placed into another IRA account within the sixty day transfer period allowed by the IRS.  If the money is placed into another SEP IRA within the allotted time, then the other twenty percent will be released.

Anytime you’re looking into a rollover for your IRA plan, it’s a good idea to go over all of the different possible options and considerations with your financial advisor to be sure you’re getting the best deal.  After all, you won’t want to complete an SEP IRA rollover only to find out later that you could have earned more money or saved more by leaving the funds alone.

The first and most common reason to perform a SEP IRA rollover is that you have access to a new type of IRA. This usually comes as part of a benefits package at a new job. Alternatively, you may also elect to establish a personal IRA outside of your current employer. In either event, be sure to contact the management of the newest IRA before you attempt the rollover from the SEP IRA accounts. A very common mistake is to request the rollover before the new SEP IRA account is ready to accept the transfer. This can trigger a whole host of problems that can be avoided by simply making that one phone call.

When deciding whether or not to perform an SEP IRA rollover, your firsts step is to take a look at the performance of your original IRA. Has the management of this IRA changed?  Has there been a steady decrease in performance?  Maybe the IRA has stopped offering investment options that are in line with your retirement saving goals.  Or maybe you just want more control over how your money is invested.  Any combination of these reasons might signal a need to move money from your SEP IRA to another.

Also, consider any recent changes in your life.  Have new needs – like medical expenses – come into play?  Age alone is a good reason to do an SEP IRA rollover.  Investment decisions that were in line with your wishes and needs as a young investor will change as you get closer and closer to cashing out the plan.  For example, riskier stock and bond investments that have a historically higher yield may hold too much risk for you as you enter the final months before you plan to cash out the plan.  If your current plan doesn’t offer more stable investment options, it may be time to consider an SEP IRA rollover.

Additionally, customer service shouldn’t be ignored.  In many ways, you’re paying for how well the management of the IRA is responding to you and your wishes.  It is, after all, your money and you deserve to be happy with both the return on your investments and the customer service you’re receiving from your current SEP IRA account provider.

In any event, when it’s time to move your SEP IRA contributions, be sure to request a direct rollover.  This way, the rollover from the SEP IRA will maintain the tax deferred status that your investments are enjoying.  If the money comes into your hands through an indirect rollover, there’s a chance that you’ll open yourself up to taxes and penalties, as well as having as much as 20% of your account balance withheld right off the bat.   All of this can be avoided by simply asking the manager of the new target IRA to do a “direct rollover,” so be sure to use those exact words when initiating your SEP IRA rollover.

If you have a SEP or Simplified Employee Pension IRA, then you either work for a small business owner or you’re self-employed (or you met one of those conditions in the past).  If you have a SEP IRA, you can rollover those funds into almost any kind of IRA – including a traditional IRA – with a few exceptions and qualifications.  Those exceptions and qualifications are spelled out by the IRS, and involve Simple IRAs, Roth IRAs, Designated Roth IRAs and 457b plans.

If you’ve already completed your transfer, your funds may have been moved from your SEP IRA in a direct rollover, also known as a trustee-to-trustee transfer.  If a trustee-to-trustee transfer took place, chances are you never saw a check, only paperwork.  If your transaction was handled as an indirect SEP IRA rollover, then you received a check from your SEP IRA which you deposited or “contributed” to your new IRA.  At the end of the tax year, you can expect to receive a 1099-R from the SEP IRA provider, regardless of which transfer method was used.

The amount included in the 1099-R will need to be included in your 1040 Federal Income Tax Return, as all SEP IRA rollovers are considered reportable events to the IRS, although they aren’t necessarily taxable.  You should include your 1099-R with your other important financial documents when you deliver them to the person who is preparing your taxes, and tell them about your SEP IRA rollover.  If you’re filing your taxes yourself, you need to carefully read and follow the instructions for line 15 of the form 1040.

Your 1099-R should show that no taxes were withheld, because when money from an SEP IRA is rolled over into a new IRA, it is not taxed as income.  You’ll need to report the amount of money rolled over (see line 15a), but the amount of tax due should be $0 (see line 15b).

It isn’t until the money from your SEP IRA rollover is withdrawn or distributed from your new IRA, that it will be subject to taxes.  If you’re like most people, you’ll wait until you’re at least 59 ½ years old with withdraw any money, when you’ll hopefully have to pay less in taxes than you would have when you earned the money.  Withdrawing funds from your SEP IRA rollover account before you meet the minimum retirement age can open you up to additional penalties and taxes.

If you have any further questions about SEP IRA rollovers, know that the IRS provides a wealth of information on their website.  You can also frequently find IRS publications at your local public library or post office.  There’s nothing, however, the compares with the peace of mind that working with a professional tax preparer or accountant to determine what your best choices are when it comes to SEP IRA rollovers.