Can I roll over a profit-sharing plan to an SEP IRA account without suffering any tax penalties and liquidation of current positions held in this account?

By Denise Appleby AAA
A:

It depends.

If the transaction is processed as a direct rollover to the SEP IRA, then no taxes will be withheld. Through a direct rollover, the assets are made payable to the SEP IRA custodian (or trustee or plan to which the assets are being rolled). If the transaction is processed as an indirect rollover - which means the assets are first distributed to the participant, who must then rollover the assets to the SEP IRA within 60 days - the administrator of the profit-sharing plan will withhold 20% of any portion of the distribution that is rollover eligible.

Check with the SEP IRA custodian to determine their documentation requirements (if any) for processing the direct rollover. The administrator of the profit-sharing plan may also have special documentation that the participant must complete to initiate any distribution, including those processed as a direct rollover to another retirement plan. In addition, some plan administrators require the custodian to provide an acceptance letter verifying the type of account to which the assets will be credited.

Provide the SEP IRA custodian with a copy of the most recent statement issued for the profit-sharing plan and ask that they identify any asset on the statement that cannot be held in their IRAs. If the custodian is able to hold all the assets that are currently being held in the profit-sharing plan, then all the assets may be rolled to the SEP IRA as they are. If the custodian is unable to hold any of the assets, then these cannot be rolled to the SEP IRA, and the participant may need to liquidate these assets to proceed with the rollover to the SEP IRA. Alternatively, the participant may shop around for a custodian that is able to hold all the assets.

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS

  1. Can I purchase mutual funds for my IRA?

    Learn how to invest your IRA assets in mutual funds. Discover a few of the different types of mutual funds available for ...
  2. What are the best ways to plan for retirement?

    Learn the basic steps to creating a solid retirement plan that can support you and your family, and find out how to manage ...
  3. How do Pay As You Go pension plans work?

    Learn how pay-as-you-go pension plans are different than fully funded pension plans and why some government plans are running ...
  4. Who is eligible for a Teacher Retirement?

    Learn about the retirement option, the Teacher Retirement System, offered to teachers and other public school employees, ...
RELATED TERMS
  1. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
  2. Gold IRA

    Definition of Gold IRA
  3. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  4. Death Master File (DMF)

    Also known as Social Security Death Index. A list of people whose ...
  5. Leveraged Benefits

    The use – by a business owner or professional practitioner – ...
  6. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
Related Articles
  1. Stock Safety: Top 3 Ways to Limit Your ...
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your ...

  2. The Best Way To Build Your Retirement ...
    Retirement

    The Best Way To Build Your Retirement ...

  3. Applying Binary Options To Equity Markets
    Options & Futures

    Applying Binary Options To Equity Markets

  4. Can You Buy Stock Insurace? 3 Strategies ...
    Options & Futures

    Can You Buy Stock Insurace? 3 Strategies ...

  5. Want To Know How To Save For Retirement? ...
    Retirement

    Want To Know How To Save For Retirement? ...

Trading Center