How to Cash in a SEP IRA

You can cash in your SEP IRA in a few simple steps.
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Simplified employee pension individual retirement accounts, or SEP IRAs, offer a less expensive way for your employer to pitch in for your retirement. Unlike a 401(k) plan, however, you don't have to wait for a triggering event or financial hardship to cash in. SEP IRAs follow the same early withdrawal penalties as traditional IRAs, so if you cash out your SEP IRA before you're 59 1/2 years old, you'll owe an extra 10 percent early withdrawal penalty. If you qualify for one of the exceptions, you'll just owe the income taxes.

Step 1

Request a distribution from the financial institution that holds your SEP IRA. You must complete a distribution request form to cash in your account, but you won't have to disclose your reasons for doing so, nor can your employer place any restrictions on when you can take out the money.

Step 2

Report the SEP IRA distribution as a taxable IRA withdrawal on line 15b of your Form 1040 tax return. SEP IRAs are tax-deferred retirement plans. Since you didn't pay taxes on the contributions, you must pay taxes on the withdrawals.

Step 3

Complete Form 5329 to figure your early withdrawal penalty unless you're at least 59 1/2 years old. If you qualify for an exemption, look up the code in the Form 5329 instructions and note it next to line 2. For example, if you're paying for qualified higher education expenses, that portion of the distribution is penalty-free.

Step 4

Report the penalty, if any, on line 58 of Form 1040. This amount adds directly to your tax due.

Step 5

Report any taxes withheld from your cash-out on line 62 of Form 1040. This amount was already paid to the government, so it reduces your taxes due (or increases your refund).

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