Can I Combine a SEP IRA & 401(k)?

If you've worked for multiple employers or you've done work as a sole proprietor and as an employee, you might have several retirement plans, including 401(k)s and SEP IRAs. Combining all of your retirement assets into one plan allows you to keep better track of your investments and possibly pay lower fees because you're investing more with a single financial institution.

Moving Funds Allowed

The IRS allows you to move money from a SEP IRA to a 401(k) and vice versa. However, neither your SEP IRA nor your 401(k) plan is required to accept rollover contributions, so check with your plan administrator before attempting any rollover. For example, your 401(k) plan might not accept rollover contributions because of the additional record-keeping costs. If so, you can't combine your plans.

Rollover Method

One way to combine your SEP IRA with your 401(k) plan is to roll the money from one into the other. To do a rollover, request a distribution from one plan and then deposit the money in the other account within 60 days. However, if you're moving money from the 401(k) plan, your employer must withhold 20 percent for federal taxes. You get the money back when you file your return, but you must make up that difference to complete the rollover, such as using money from your savings account. On the other hand, because SEP IRAs are subject to IRA rules, you can opt out of the withholding if you move money out of that account.

Transfer Alternative

Instead of doing a rollover, consider using a transfer instead. With a transfer, the trustee of your plan moves the money straight to the other account, so you don't have to handle the money. That means you don't have any chance of missing the deadline and you don't have to make up the 20 percent withholding. Plus, you don't have to report the transfer on your taxes.

Roth 401(k)s

Different rules apply if you are trying to combine your SEP IRA and a Roth 401(k) plan. You're not allowed to transfer money from a SEP IRA directly into a Roth 401(k) plan, even if you pay taxes on it at tax time. But, you are allowed to transfer money in a 401(k) plan to a Roth 401(k) plan. So, if you wanted to combine your SEP IRA with your Roth 401(k), need to take two steps. First, you need to transfer the SEP IRA funds to a regular 401(k) plan. Second, convert the regular 401(k) to a Roth 401(k). When you convert from a regular 401(k) plan to a Roth 401(k) plan, you must pay taxes on the amount of the conversion because you're moving money from a tax-deferred account to an after-tax account.


About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."