One advantage to working for an employer who sponsors a simplified employee pension individual retirement account is that unlike other employer plans, including 401(k)s and 403(b)s, you can take your money out at any time, even if you're still working for the company or you're not yet 59 1/2 years old. The downside is that if you're not 59 1/2, you'll owe a 10 percent penalty on the distribution, unless an exception applies. The available exceptions are the same as those for a traditional IRA, and include withdrawals to cover medical expenses exceeding 7.5 percent of your adjusted gross income, medical insurance premiums while you're out of work, higher education costs and up to $10,000 for a first home.
Step 1
Request a distribution by completing and submitting a SEP IRA distribution request form to your plan administrator. The form requires your name, Social Security number and SEP IRA information. At the end of the year, you will receive a Form 1099-R documenting your distribution for tax purposes.
Step 2
Report the amount of the distribution on line 15b of Form 1040. This amount is included in your taxable income.
Step 3
Complete Form 5329 to compute your early withdrawal penalty, since you are taking a distribution before turning 59 1/2 years old. If you qualify for an exception, report the amount of the exception on line 2 and the code, found in the instructions for Form 5329, in the space next to line 2. Any penalty you owe goes on line 58 of Form 1040.
Step 4
Report any withholding, found in box 4 of your Form 1099-R, on line 62 of Form 1040. This amount decreases your taxes due.
References
- Internal Revenue Service: Publication 560 -- Retirement Plans for Small Businesses
- Internal Revenue Service: Publication 590 -- Individual Retirement Arrangements (IRAs)
- Ally: Traditional/SEP IRA Request for Distribution
- Internal Revenue Service: Form 5329 Instructions
- Internal Revenue Service: Form 1040
- Internal Revenue Service: Form 1040 Instructions
Tips
- If you want to maintain the tax-deferral on the money, roll it over to another qualified tax-deferred retirement plan, such as a traditional IRA, within 60 days of taking the distribution.
Writer Bio
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."