Can I Roll My Sep IRA Into a Traditional IRA or Should I Convert to a Roth?

A simplified worker pension (SEP) IRA is a retirement financial savings plan established by employers—together with self-employed individuals—for the advantage of their staff and themselves. Employers might make tax-deductible contributions on behalf of eligible staff to their SEP IRAs.

SEPs are advantageous as a result of they’re simple to arrange, have low administrative prices, and permit an employer to find out how a lot to contribute every year. SEP IRAs even have greater annual contribution limits than commonplace IRAs.

Basically, a SEP IRA will be thought-about a conventional IRA with the flexibility to obtain employer contributions. One main good thing about a SEP IRA is employer contributions are vested instantly.

Nevertheless, generally you may must roll your SEP into a distinct certified account—as an example, for those who change jobs or the employer goes out of enterprise.

Changing to a Conventional IRA

Technically, the SEP IRA and the standard IRA are the identical sort of account, for tax functions. The one distinction is that the SEP IRA is allowed to obtain employer contributions whereas a conventional IRA solely particular person contributions. So you’ll be able to mix the SEP IRA into the standard IRA with none ramifications, aside from who’s allowed to contribute. When doing so, transfer the belongings as a (non-reportable) trustee-to-trustee direct switch. Changing to a Roth IRA could be a bit trickier.

Changing to a Roth IRA

Whether or not a conversion to a Roth IRA is nice for you is determined by your monetary profile. Usually, for those who can afford to pay the taxes that might be due on the conversion—and your tax bracket throughout retirement will likely be greater than your tax bracket now—it is smart to transform your belongings to the Roth IRA.

That will sound very common, however solely somebody acquainted with your funds may make a selected suggestion. Word, nevertheless, that there is a five-year rule for Roth IRA distributions, so additionally take into account your age and the way lengthy it will likely be earlier than you retire earlier than you resolve to make the switch.

At a minimal, you’ll be able to mix the SEP and conventional IRA to scale back any administrative and trade-related charges that could be charged to the account.