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SEP-IRA – where to open, features to look for

Home Retirement Accounts SEP-IRA – where to open, features to look for

  • Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1973
    Joined: 02/01/2016

    Even a custom plan document would give no such authority to do so.

    26 U.S. Code § 408. Individual retirement accounts, (k) Simplified employee pension defined, (4) Withdrawals must be permitted A simplified employee pension meets the requirements of this paragraph only if—

    (A) employer contributions thereto are not conditioned on the retention in such pension of any portion of the amount contributed, and
    (B) there is no prohibition imposed by the employer on withdrawals from the simplified employee pension.

    Note: This requirement is only on employer contributions. If this was a grandfathered SARSEP, in-service rollovers of employee deferrals would still be prohibited by IRS regulations prior to age 59 1/2.

    #191191 Reply
    Kon Litovsky Kon Litovsky 
    Participant
    Status: Financial Advisor
    Posts: 948
    Joined: 01/09/2016

    Even a custom plan document would give no such authority to do so.

    26 U.S. Code § 408. Individual retirement accounts, (k) Simplified employee pension defined, (4) Withdrawals must be permitted A simplified employee pension meets the requirements of this paragraph only if—

    (A) employer contributions thereto are not conditioned on the retention in such pension of any portion of the amount contributed, and
    (B) there is no prohibition imposed by the employer on withdrawals from the simplified employee pension.

    Note: This requirement is only on employer contributions. If this was a grandfathered SARSEP, in-service rollovers of employee deferrals would still be prohibited by IRS regulations prior to age 59 1/2.

    Click to expand…

    Good to know!  I’d still would advise OP to get a copy of the plan doc and study it carefully just in case.

    Kon Litovsky, Principal, Litovsky Asset Management | [email protected]
    -401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

    #191337 Reply
    Avatar CFEonline 
    Participant
    Status: Physician
    Posts: 148
    Joined: 09/05/2018
    Note: This requirement is only on employer contributions. If this was a grandfathered SARSEP, in-service rollovers of employee deferrals would still be prohibited by IRS regulations prior to age 59 1/2. February 16, 2019 at 10:48 am MST

    Click to expand…

    For a SARSEP, would in service rollover to i401k necessarily be prohibited for all instance, or would it depend on the particular plan?

     

    Also, if you have a SARSEP through a group, could you also have an i401k for a separate 1099 IC income? (Does the SARSEP necessarily count as a separate control group?)

     

    Anything else in particular to be aware of regarding SARSEPs?

    #229443 Reply
    Avatar CFEonline 
    Participant
    Status: Physician
    Posts: 148
    Joined: 09/05/2018

    I found this in IRS pub 4336

    Distributions
    Participants cannot take loans from their SEP-IRAs.
    SARSEP contributions and earnings can be withdrawn at any time. When participants take a
    distribution, they typically can elect to:
    „ take a lump sum distribution of their account, or
    „ roll over their account to another IRA or another employer’s retirement plan.
    Distributions from a SEP-IRA are generally subject to income tax for the year in which they
    are received. If a participant takes a withdrawal from a SEP-IRA before age 59 1/2, generally a
    10-percent additional tax applies.
    SEP-IRA assets may be rolled over tax-free into a traditional IRA, 401(k) (or other plan qualified
    under IRC Section 401(a)), a 403(b) plan or a governmental 457 plan. They may also be rolled
    into a Roth IRA (a transaction usually referred to as a “conversion”). Remember, amounts rolled
    over from a SEP-IRA, upon which no income tax has been paid, to a Roth IRA, will be subject
    to income tax. For additional information, see Publication 590-B, Distributions from Individual
    Retirement Arrangements (IRAs).

     

    It seems like rolling into an i401k would be allowed and not subject to the 10% “additional tax” if it can be rolled to the qualified plan “tax free”. Presuming the SARSEP and i401k can coexist in the same year like an employer SEP-IRA and a side job i401k.

    #229444 Reply
    Avatar StateOfMyHead 
    Participant
    Status: Advanced Practice Provider
    Posts: 156
    Joined: 01/01/2019

    I had a SEP-IRA decades ago at T.Rowe Price and can’t remember why but at some point changed it to Charles Schwab which has been fine. It was easy to open, has been easy to fund, easy to buy whatever.

    #229633 Reply

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