How to Liquidate a Simplified Employee Pension Plan (SEP) IRA

Liquidating your SEP before retirement could mean a tax penalty.

Liquidating your SEP before retirement could mean a tax penalty.

A Simplified Employee Pension (SEP) IRA is a retirement savings plan that small businesses can set up for their employees. You can also set up a SEP IRA if you're self-employed. A set amount of money goes into the plan each year and grows tax-free until you're ready to take it out.


Unlike 401(k)s and similar retirement plans, your employer can't stop you from taking money out of your SEP account at any time. You also don't need to prove a financial hardship to liquidate your plan. There are no limits on how much you can withdraw and you can take a partial or full distribution. Unless you change jobs or close your account completely, your employer can continue adding money to your plan or, if you're self-employed, you can keep making contributions.

SEP IRA Rollovers

When you're ready to take money out of your SEP, simply contact the brokerage that holds your account. If you're planning on rolling the money over into another retirement account, you can ask for a direct rollover. This means the money is transferred directly to the new account on your behalf. If you want to roll the money over yourself, you can ask the plan administrator to send you a check. You'll then have 60 days to put the money into another IRA or qualified retirement plan. Generally, SEP funds can be rolled into a traditional or Roth IRA, another SEP IRA or any other qualified plan, excluding designated Roth accounts.

Tax Treatment

If you're rolling over SEP funds directly to another retirement plan, you won't have to pay any taxes on the money until you start making withdrawals. If you're rolling the money over yourself, your plan administrator will automatically withhold 10 percent for federal taxes. You'll need to make up the difference when you roll the money over; otherwise, the IRS treats it as taxable income. If you're not rolling the money over at all, you'll have to pay income tax on the total amount. You'll also have to pay a 10-percent early withdrawal penalty if you're under age 59 1/2.


If you're doing an indirect rollover and you don't transfer your SEP funds to a new retirement account within the 60-day window, it automatically becomes a taxable distribution. Certain distributions from SEP IRAs can't be rolled over, including required minimum distributions starting at age 70 1/2. You also can't roll over distributions you receive because your employer put excess contributions in your account.


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Rebecca Lake is a freelance writer and virtual assistant living in the southeast. She has been writing professionally since 2009 for various websites. Lake received her master's degree in criminal justice from Charleston Southern University.

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