SEP IRA to IRA transfer, then SEP contribution question

Submitted by Jeanette LoPiccolo on Fri, 2022-09-16 13:12

Client is 70.5 and has an ongoing SEP IRA. We have one SEP contribution made in 2022 for 2021. We would like to retitle the SEP as a Trad IRA so the client is eligible to make QCDs in 2023. [Our broker dealer allows this step.] We would also like to open a new SEP IRA account to make a 2022 contribution. Here is the question: Can we immediately transfer the SEP contribution funds to the Traditional IRA?



Submitted by Alan - IRA critic on Fri, 2022-09-16 15:29

 Why not just do a direct transfer of most of the SEP balance to a new IRA and then execute the QCD from the new IRA. The SEP account can continue as is for on going SEP contributions.

Submitted by Jeanette LoPiccolo on Wed, 2022-09-21 17:44

Great solution! Thank you.  As a follow up, can we immediately transfer the SEP contribution to the Traditional IRA?  Does the IRS have an issue with the timing between a contribution to a SEP, and the subsequent transfer of theose funds to a Traditional IRA?

Submitted by Alan - IRA critic on Wed, 2022-09-21 19:51

  • There is no restriction, but there would be a real mess if the SEP contribution turned out to be in excess of the allowed calculated amount and the SEP balance had been fully transferred. Therefore, it might be safer to leave a sufficient balance behind in the SEP IRA to allow removal of an excess, and/or only transfer the amount needed for the QCD to the TIRA.
  • Of course, a QCD after 70.5, but prior to the first RMD distribution year (2023?) does not save any tax dollars in the QCD year, but reduces future RMDs by reducing the balance of the IRA. More immediate tax savings would be realized by waiting to do the QCD in January of the first RMD distribution year (2023?)

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