Hello,

We know that SEP IRAs can accept both employer SEP contributions and individual Traditional IRA contributions. However our custodian does not allow the opposite; SEP contributions must be made to a SEP IRA and cannot be made to a Traditional IRA. One of our advisors is questioning the policy and is saying that the IRS allows for SEP contributions to be made to Traditional IRAs.

In doing some research it does appear there are some references that may support the advisors assumption. See below. However my thought is that when these regs reference “Traditional IRA,” it may be referring to something in the IRC language rather than just a general Traditional IRA registration. The IRS says in many places that Traditional IRA contributions can be made to SEP IRAs, but doesn’t say the vice versa anywhere.

Would be curious to know your thoughts. Thanks!

Pub 560

Under a SEP, you make contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained.

5305-SEP

Simplified employee pension. A SEP is a written arrangement (a plan) that provides you with an easy way to make contributions toward your employees’ retirement income. Under a SEP, you can contribute to an employee’s traditional individual retirement account or annuity (traditional IRA). You make contributions directly to an IRA set up by or for each employee with a bank, insurance company, or other qualified financial institution. When using Form 5305-SEP to establish a SEP, the IRA must be a Model traditional IRA established on an IRS form or a master or prototype traditional IRA for which the IRS has issued a favorable opinion letter. You may not make SEP contributions to a Roth IRA or a SIMPLE IRA. Making the agreement on Form 5305-SEP does not establish an employer IRA described in section 408(c).

Thank you.