Technically, the SEP IRA and the Traditional IRA are the same type of account. The only difference is that the SEP IRA is allowed to receive employer contributions. Therefore, you can combine the SEP IRA into the Traditional IRA without any ramifications. When doing so, move the assets as a (nonreportable) trustee-to-trustee transfer.

Whether a conversion is good for you depends of your financial profile. In general, if you can afford to pay the taxes that would be due on the conversion and your tax bracket during retirement will be higher than your tax bracket now, then it makes sense to convert your assets to the Roth IRA. That may sound very general, but only someone familiar with your finances could make a specific recommendation.

At a minimum, you can combine the SEP and Traditional IRA to reduce any administrative and trade related fees that may be charged to the account.

For more insight, read The Simple Tax Math Of Roth Conversions.

The Advisor Insight

There are two issues to consider. If you roll a SEP IRA into a traditional IRA, assuming you do it right, there are no taxes to pay and your money will continue to grow tax deferred until you begin taking withdrawals.

If you decide to roll it into a Roth IRA, you will owe income tax on the amount rolled over. However, the money will then grow tax exempt since there will be no taxes to pay when you begin taking withdrawals.

Be sure to know ahead of time how much you will have to pay in taxes. Also try to avoid using some of the rollover money to pay the tax because it could trigger an early withdrawal penalty, depending on your age.

It’s up to you to decide which option works best. If you are unsure, you may want to consult a financial planner.


Arie Korving
Korving & Company LLC
Suffolk, VA