I have several IRA’s that were rollovers from my 401(k) that I had during my employed years. I have now retired from that employed life and am now a self-employed piano tuner – a one man show. I would like to set up a SEP IRA since it will give me tax benefits. My question is this: can I rollover funds from one of my IRA’s to fund the new SEP? Or would I have to take a distribution, pay the taxes and then use those after tax $ to fund the SEP?
Thanks for that info. I assume that if I so desire, I could take a distribution from the IRA – subject to its taxation conditions and then use those funds as a deposit into the SEP – again subject to the SEP regulations. Correct?
Yes, you could do that, but the tax on the distribution will offset your tax savings from making the SEP contribution. Your total IRA balance of both would not change, and it would not reduce your taxes. And it would increase your taxes if you are not yet 59.5 because of the 10% penalty on the IRA distribution.
Again, thank you. I am 65 so no worries on the age penalty. Yes, the aggregate IRA position would not change but what will happen is I would now have a SEP IRA for the business that will be availabe for the next few years . This will allow for not only subsequent investment but also continued tax free growth.Don
If you have no other money with which to fund a SEP-IRA contribution for 2017, making a taxable distribution from a traditional IRA in 2018 to fund a SEP-IRA contribution for 2017 would serve to move this amount of taxable income from 2017 to 2018. Given the changes in the tax rates for 2018, this might be beneficial. However, doing so might reduce or eliminate any Retirement Savings Contributions Credit you might otherwise be eligible to receive for 2017 through 2020; the potential loss of this tax credit might more than counter any benefit moving the income from 2017 to 2018. Unless you expect to be ineligible for the Retirement Savings Contributions Credit in 2018 through 2020, I probably wouldn’t make the distribution from the traditional IRA to fund the SEP-IRA contribution.
Permalink Submitted by Alan - IRA critic on Mon, 2018-03-19 04:41
The SEP IRA is funded by contributions from your net earnings from self employment, not from your other IRA accounts. You can still open a SEP IRA for 2017 and make contribution by 4/17 or by 10/15 if you file an extension for your 2017 return. If a sole proprietor you can contribute up to 20% of your modified net income subject to a 54,000 max for 2017), which is far more than a traditional IRA contribution if you have enough net income.