SEP IRA Rollover

Key facts

  • When you leave your employer, you can rollover your SEP IRA account to a new or existing IRA.
  • Moving funds into an account you control allows you to choose the investment strategy that best fits your needs.
  • The three methods to rollover your funds are direct rollover, trustee-to-trustee transfer, and 60-day rollover.

Many workers enjoy the benefits of a Simplified Employee Pension Individual Retirement Account (SEP IRA), which allows employers to contribute directly to employees’ retirement savings accounts. Employer contributions are tax-deferred, so employees don’t pay taxes on the contributions and earnings until funds are withdrawn.

As with Traditional IRAs, you can withdraw from the account at any time for any reason, but distributions taken before age 59 ½ could be subject to a 10% tax penalty. The SEP IRA account your employer set up has to stay open for the length of your tenure with the company so you can receive contributions. However, once you leave the company, you may want to consider a SEP IRA rollover.

When Does a SEP IRA Rollover Make Sense?

The most common reason to complete a SEP IRA rollover is that you are no longer an employee of the sponsoring business. Whether you have moved on to another company, started your own business, or retired, you may not want your employer to continue to have manage your retirement account.

Since you can have as many IRA accounts as you wish, a SEP IRA rollover into a new or existing IRA account has no downside. Instead, it gives you the opportunity to consolidate your portfolio and decide how your funds are invested. For example, you can choose a financial institution or investment manager with lower fees and stronger focus on after-tax returns, which ultimately increases the value of your account.

SEP IRA Rollover Rules

One option is to merge your SEP IRA with another tax-deferred IRA account. To be specific, you cannot roll a tax-deferred SEP IRA into a Roth IRA plan, because taxes are assessed quite differently for each type of account. However, you can rollover into a new or existing Traditional IRA account, because SEP IRA rules mirror Traditional IRA rules. Rolling your SEP IRA into your new employer’s 401(k) plan is permitted by the IRS, but the sponsoring organization’s 401(k) plan rules must allow this sort of transaction.

There are three basic methods of rolling over SEP IRA funds to an existing IRA, a new IRA, or a 401(k) plan:

  1. Direct Rollover: The financial institution holding your SEP IRA sends you a check payable to the new account. You deposit the check directly into the new IRA, avoiding any tax liability.
  2. Trustee-to-trustee transfer: This transaction takes you out of the middleman role altogether, as the two financial institutions partner to complete the rollover. This rollover method also ensures that you avoid tax liability.
  3. 60-Day Rollover: Those who want more control over the rollover process choose a 60-day rollover, in which your current financial institution distributes the SEP IRA funds to you directly. Often, taxes are withheld. You then have 60 days to deposit the funds into your new IRA account so that you can avoid taxes and penalties.

Bear in mind that if taxes are withheld, as with the 60-day rollover method, you are responsible for making up the difference when you re-deposit your funds into your new account. Also, you can only use the 60-day rollover method once a year.

Make the most of your retirement savings by taking control of your funds. When you complete a SEP IRA rollover, you can choose the investment strategy that best suits your needs.


Nothing in this article should be construed as tax advice, a solicitation or offer, or recommendation, to buy or sell any security. This article is not intended as investment advice, and Wealthfront does not represent in any manner that the circumstances described herein will result in any particular outcome. Financial advisory services are only provided to investors who become Wealthfront clients.

This article is not intended as tax advice, and Wealthfront does not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should confer with their personal tax advisors regarding the tax consequences based on their particular circumstances. Wealthfront assumes no responsibility for the tax consequences to any investor of any transaction. Investors and their personal tax advisors are responsible for how the transactions in an account are reported to the IRS or any other taxing authority.