Can I Combine a SEP-IRA and a Profit Sharing Plan?

If you use a transfer rather than a rollover, you don't report it on your taxes.

If you use a transfer rather than a rollover, you don't report it on your taxes.

Employers can offer profit-sharing plans and simplified employee pension individual retirement accounts as ways to funnel extra tax-deferred retirement savings to their employees. The Internal Revenue Service allows you to combine your retirement funds in a SEP-IRA and a profit-sharing plan without any taxes or penalties using a transfer or rollover, but you may not always be eligible to siphon money out of a profit-sharing plan to do this.

SEP-IRA to Profit Sharing

Under IRS rules, you're allowed to shift money from a SEP-IRA to a profit-sharing plan whenever you want. Your employer can't keep you from taking money out of your account. However, check with your profit-sharing plan first to make sure it accepts rollovers from other accounts. It might not, even though the tax code allows it. You won't be hit with income taxes for moving the money because both accounts are tax-deferred.

Profit Sharing to SEP-IRA

Moving money from a profit-sharing plan to a SEP-IRA is also fine under the tax code, but you're not always allowed to pull cash out of your profit-sharing plan. You're limited in withdrawing from such a plan if you're under age 59 1/2, even if you just want to roll the money over to another qualified plan. For example, you can only tap the account after you've left employment or suffered a permanent disability. In some cases, you may be able to take a distribution for a financial hardship, but you're not allowed to roll over hardship distributions.


Using a transfer, sometimes called a direct rollover, offers the most efficient way to get the money from one account to another. With a transfer, you tell your financial institution where you want the money moved and it shifts the cash without any extra work on your part. Because you never touch the money, you don't need to have any of it withheld for income taxes or report the transfer on your return.


Rollovers occur when you take a distribution from one plan and redeposit the money in another plan in 60 days. If you miss the deadline, you're stuck with a permanent distribution, which is hit with taxes and a 10 percent early withdrawal penalty if you're under 59 1/2. When you take the withdrawal from your SEP-IRA, you can opt out of tax withholding. If you take the withdrawal from a profit-sharing plan, your employer withholds 20 percent that you won't get back until you file your tax return. Unless you come up with that 20 percent out of pocket, that slice of the rollover is considered distributed. You're limited to one rollover from any account in a given year.


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."

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