SEP IRA for Self Employed
A client recently closed his business and is now an employee. He started a SEP while he was self-employed. Is there any chance he can treat his existing SEP as a Traditional IRA and continue making contributions to it using Traditional IRA limitations?
Permalink Submitted by Alan - IRA critic on Wed, 2020-10-14 18:32
Yes, regular TIRA contributions can be made to a SEP IRA, but must be flagged by the SEP custodian as such for Form 5498 reporting. There is an increased risk that these contributions will be reported as SEP contributions in error and that will result in an IRS mismatch with Form 1040. If client intends to resume self employment in the near future, it will be safer to make the TIRA contributions to a new account. If client does not intend to resume SEP contributions, then he should transfer the SEP IRA into the new TIRA account. Again, he can make the TIRA contribution to the SEP, but if he does he should clearly flag it as a TIRA contribution, NOT a SEP contribution.