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