If you no longer need your SEP IRA, or if you’ve left a firm with a SEP IRA retirement plan, there are many reasons to move your funds to a self-directed IRA. First, SEP IRA plans often have investment limitations imposed by the management firm or SEP creator that you won’t have with a self-directed IRA. Second, there can be a huge difference in fees between a SEP IRA plan and a self-directed IRA, so a rollover could potentially save you lots of cash.
Create your new IRA to hold your SEP funds once you transfer the assets. This is an important first step, because you’ll need the account number and firm you’re moving funds to for the transfer paperwork. If you like working alone on research and picking investments, compare online brokerages to save money on trading fees. If you’d prefer to work with an investment professional, look toward full-service brokerages to help you find suitable investments. Before picking a broker or adviser, look up his compliance and work history on the Financial Industry Regulatory Authority BrokerCheck website.
Ask about account closing and asset sale fees before moving your SEP IRA. Some mutual funds in SEP IRAs have back-end fees on funds. In the case of annuity-based accounts, there may be surrender charges. There may also be fees to close your account, so it’s better to find out all of these costs before transferring.
Fill out rollover paperwork with your new IRA account. If you like the investments in your SEP IRA, you may be able to transfer them in-kind to your new self-directed IRA account. Ask your new IRA provider for an asset transfer form that brings yours assets to the new IRA without selling. Full-service brokers will direct the process and help you fill out appropriate forms. Online brokers will have a rollover and transfer section that you can find by using the search feature of the brokerage site.
Monitor the transfer of your funds. Generally, the process should only take a couple of weeks. Although your new IRA company usually has someone facilitating the IRA transfer process on your behalf, it doesn’t hurt to call after a couple of weeks to find out whether there's something you can do to speed up the process. The new provider may ask you to call the SEP company to speed up the transfer.
File your tax returns correctly at tax time the following year. Your old SEP company will mail a 1099-R to you showing the disbursement from the plan. Read Box 7 to find the letter “G.” This tells the IRS that you legally rolled your money to an eligible retirement plan and owe no tax. Write your rollover amount in line 12a if you file Form 1040A, or line 16A if you file Form 1040. Write “0” in line 12b for Form 1040A or 16A if you file Form 1040, showing the IRS that you spent none of the transfer money. Write “rollover” next to the “0” on your tax document.
As a former financial advisor to companies and individuals for 16 years, Joe Andrews knows financial planning and marketing from start-ups to personal budgets. He also writes on motor racing, board games and travel. Andrews received his B.A. from Michigan State University in English. He is currently working on a young adult novel.