Employers use Simplified Employee Pension IRAs -- commonly called "SEPs" -- as a way to make contributions toward employees' retirements. In many cases, employees set up special accounts for SEP IRA contributions, which may lead to frustration when you're trying to decide how to invest, how to invest, or even when you just want to know how much money you have. Fortunately, SEP consolidation via rollover is easy, and you can do it at any time.
A rollover is a transfer of SEP assets into another IRA or qualified plan. SEPs are traditional-style IRAs -- contributions to the account are tax deductible or tax deferred -- so a true rollover is a transfer from your SEP to an individual traditional IRA, another SEP or SIMPLE IRA plan, or an employer-sponsored qualified retirement plan like a 401(k). You can do a rollover in one of two ways: Take a distribution from the original SEP and deposit it to a different plan on your own, or work with your SEP plan sponsor and the receiving account custodian for a direct, "trustee-to-trustee transfer."
By far, the most important rule for a SEP rollover is the 60-day rule. When you withdraw SEP assets, you have 60 calendar days to re-deposit them to the same or another qualified account. If you don't, the IRS will call the withdrawal an early distribution. Unless you meet the criteria for an exception as outlined in IRS Publication 590, you must include the distribution in your income for the year, and you'll also owe an additional 10 percent tax penalty on the full value of the withdrawal.
While you can remove money from your SEP at any time, the IRS allows only one rollover per year, per account. This means that you can roll over only one distribution from your SEP account per 12-month period. It also means that you can't roll money out of the receiving account in that same period. You could, however, roll several IRA accounts into one account in the same year if you wanted to consolidate, but again, you couldn't roll anything out of that receiving account for 12 months. The accounting period for the one-year rule begins on the day you withdraw funds from the original account.
Report your rollover on your IRS Form 1040 in the year it's completed. This is a pair of lines, 15a and 15b on the standard 1040 form, that asks for the value of the distribution from your SEP and the value of the deposit to your receiving IRA or qualified plan account. Specific instructions for this reporting are included with the instructions for Form 1040 and in IRS Publication 590.
You cannot roll over any required distributions from your SEP if you're over age 70 1/2. Your receiving account must be your individual account -- it can't be an inherited account or one owned by your spouse.
Nola Moore is a writer and editor based in Los Angeles, Calif. She has more than 20 years of experience working in and writing about finance and small business. She has a Bachelor of Science in retail merchandising. Her clients include The Motley Fool, Proctor and Gamble and NYSE Euronext.