SEP IRA Transfer

The SEP IRA is an employer-sponsored retirement account available to any business, be it one person or hundreds of employees. The term SEP stands for simplified employee pension, although it is more like a profit sharing plan than a pension. The establishment and operation of a SEP IRA is considerably simpler and cheaper for the employer compared to other qualified retirement accounts.

The SEP IRA plan document can be obtained from the IRS at no cost, using IRS Form 5305-SEP. The employer adopts the plan and files the form away. The employer then establishes an IRA account for each eligible employee. The annual contributions are made into each employee’s IRA. It then becomes each employee’s IRA with no fiduciary or reporting burden to the employer. SEP IRA plans can be started by self-employed individuals as well.

The SEP IRA is an excellent tax deferral tool for small businesses such as single member LLCs and partnerships, because the plan can be established after the end of the calendar or tax year and funded for the prior year with a deductible contribution in that prior year. This makes the SEP IRA a great tax planning tool because you can see what your taxes might be for the previous year before making a contribution to decide if you need further deductions.

What Are The Rules Of a SEP IRA?

There are a couple of rules that are very important to keep in mind when establishing a SEP IRA or doing a SEP IRA transfer. First, the employer contribution, if one is made for a particular tax year, must be uniform for all eligible employees. An employee is eligible for an employer contribution if the employee has met these requirements:

  • Is at least age 21
  • Earned more than $550 in the calendar year
  • Worked for the employer in 3 out of the last 5 years

Thus, the SEP IRA may cover more employees than a profit-sharing plan adopted by the employer. The contribution limits for a SEP IRA are considerable. The limit in any year is the lesser of 25% of compensation or self-employment income or $52,000 (adjusted annually for inflation). Unless you earn $22,000 or less, this is considerably more than the $5,500 limit for other IRA plans

The rules of a traditional IRA apply with respect to the allowable IRA investments, taxation of distributions and the need for an institutional custodian or trustee.

rules sep ira transfer retirement planSEP IRA Transfers

The beauty of a SEP IRA is in the ability to transfer the account to the employee’s control. While the employer decides which custodian or trustee to use for all of its employees SEP IRA accounts, once the contribution is made, it is the employee’s account to manage. Therefore, the employee could take an immediate distribution from the account (not recommended) or transfer the account to a new custodian/trustee and a new investment program. This gives you significant control over the SEP IRA.

There are specific steps to accomplish the transfer into a new IRA account:

  • Obtain the paperwork from the new IRA provider to establish an account. This may be done in person, over the phone or on the internet. This paperwork will likely include an account application, beneficiary designation form and an account transfer form. The account application form will ask for all of your typical, personal information.  It may ask questions relating to your financial sophistication and relationship to financial institutions or holdings in a publicly traded company. You will want to have all of the beneficiary information, such as their name, address and social security number. Depending on where you are establishing the new IRA, you may be able to move your investments or assets “in kind” or you may be required to sell them and only transfer cash. It is always useful to attach a copy of the most recent statement of your old IRA to the account transfer form.
  • If you are transferring the old IRA into an existing IRA with the “new provider”, an account transfer form may be the only thing required. While you are in fact transferring your old IRA, you are also consolidating your IRA assets, which is recommended. Contact the “new provider” as to the forms they require to affect the transfer.
  • You may transfer some or all of the old IRA assets or account value. The account application and/or the asset transfer form will ask for the amount or assets to be transfer.
  • Depending upon the old IRA provider and the type of assets in the old account, it is be advisable to contact them to let them know of the impending transfer. They may also require an account termination form, fees, etc.
  • It is recommended that you do not attempt to make addition contributions or make trades in the old IRA when a transfer is in progress.
  • While the new IRA provider is responsible for monitoring the IRA account or asset transfer, you should continue to monitor the progress. Depending on the types of assets involved and the type of IRA trustee or custodian of the old IRA, it could take between 2 to 6 weeks for the transfer to be completed.

Additionally, your SEP IRA can be the receptacle of other IRAs, 403b accounts and 401k accounts. In essence the SEP IRA becomes a “rollover IRA.” If your employer funds the SEP IRA plan in future years, they may or may not allow the contribution to go to the transferred IRA. Worry not, if they fund the SEP IRA with another trustee, you can transfer the monies to the new trustee.

SEP IRA Summary

The SEP IRA is a wonderful retirement plan for small businesses, sole proprietorships and single member LLCs. The SEP IRA provides for significant tax-deferred contributions and flexibility in investments. It can be a powerful tool in tax planning. And, if you wish to invest your IRA a position in precious metals, Janguard is here to assist you. Please feel free to call us today at 800.571.6341 so that we can help  “Secure Your Independence.”