Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Help! SEP IRA was transferred into a Traditional IRA...bad?
Old 12-19-2006, 09:48 AM   #1
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,435
Help! SEP IRA was transferred into a Traditional IRA...bad?

A relative has some self-employment income (going into a corporation she setup) and she had created a SEP IRA at Schwab where she had been making contributions. Earlier this year, I suggested that she transfer the SEP IRA to E-trade (where she already had a Traditional IRA). I had expected the SEP IRA to be transferred into a "new" SEP account at E-trade. However, I just learned that the SEP IRA funds were transferred into the existing Traditional IRA, not into a new SEP account.

Here is the critical question...can her corporation continue to make contributions on her behalf to her IRA now that it is a Traditional IRA? She wants to put the full $7,000 in for 2006 but I am not sure if she needs to open a new SEP IRA or if it is allowed to put the $7k into the Traditional IRA. Can anyone advise?

Moreover, does the IRS even allow you to transfer a SEP into a Traditional IRA? Is this a big screwup that will have tax implications? Do I need to find some way to un-conmingle the funds?
__________________

__________________
soupcxan is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Help! SEP IRA was transferred into a Traditional IRA...bad?
Old 12-19-2006, 10:18 AM   #2
Recycles dryer sheets
 
Join Date: Aug 2004
Posts: 85
Re: Help! SEP IRA was transferred into a Traditional IRA...bad?

I don't think they would've allowed:

SEP IRA --> Traditional IRA

Instead, I think they would have allowed:

SEP IRA --> Rollover IRA

And to answer your first question, no, she/her corporation can't contribute to the new
account, because it is not a SEP.

She has to open up another SEP.

If she's self-employed, why not go with the solo 401(k)? It's a little more flexible.

I have one at Fidelity, and I also have everything else in-house with them. Makes it nice & easy to keep track...

HTH.
__________________

__________________
LRAO is offline   Reply With Quote
Re: Help! SEP IRA was transferred into a Traditional IRA...bad?
Old 12-19-2006, 10:24 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,435
Re: Help! SEP IRA was transferred into a Traditional IRA...bad?

Oh, E-trade definitely allowed the transfer from the Schwab SEP IRA to the E-trade Traditional IRA...the funds have been there for most of the year. I'm still not sure whether this will cause problems with the IRS.

E-trade won't allow the corporation to make a contribution to the Traditional IRA...they said she has to open a new SEP for that. So I think that's what we'll do, since the end of the year is around the corner.
__________________
soupcxan is offline   Reply With Quote
Re: Help! SEP IRA was transferred into a Traditional IRA...bad?
Old 12-19-2006, 10:43 AM   #4
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: Help! SEP IRA was transferred into a Traditional IRA...bad?

Who made the mistake? What your mother wanted was a trustee to trustee transfer, which simply would have continued the SEP at the new brokerage. Instead, she got a rollover. If E*trade made the mistake, I would tell them to fix it.

Otherwise, start a new SEP. In that case, make sure she was eligible to do a rollover without tax consequence.I think, but I am not sure, that you can rollover a SEP into a traditional IRA any time without tax consequence, but you can't contribute to the SEP anymore.



__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: Help! SEP IRA was transferred into a Traditional IRA...bad?
Old 12-19-2006, 10:56 AM   #5
Thinks s/he gets paid by the post
retire@40's Avatar
 
Join Date: Feb 2004
Posts: 2,670
Re: Help! SEP IRA was transferred into a Traditional IRA...bad?

Quote:
Originally Posted by soupcxan
Here is the critical question...can her corporation continue to make contributions on her behalf to her IRA now that it is a Traditional IRA? She wants to put the full $7,000 in for 2006 but I am not sure if she needs to open a new SEP IRA or if it is allowed to put the $7k into the Traditional IRA. Can anyone advise?
Just curious. Will she get a Form W-2 from her corporation showing gross wages of $28,000 for 2006?
__________________
No man is free who is not master of himself. --- Epictetus
Enjoy Yourself (It's Later Than You Think). --- Guy Lombardo
retire@40 is offline   Reply With Quote
Re: Help! SEP IRA was transferred into a Traditional IRA...bad?
Old 12-19-2006, 12:19 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,435
Re: Help! SEP IRA was transferred into a Traditional IRA...bad?

I think the mistake was on our end, not E-trade (they did what we told them to).

So the real question is, did rolling the SEP into the Traditional make her inelgible to contribute to a SEP for the year. That's a tough one.
__________________

__________________
soupcxan is offline   Reply With Quote
Reply

Tags
ira


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Traditional IRA to Roth Conversion Question Dog FIRE and Money 5 03-10-2007 10:53 PM
SEP IRA, WHAT ARE DIFFERENCES FROM TRADITIONAL IRA? fire2china FIRE and Money 1 02-05-2007 08:38 PM
Contributing to Roth IRA and Traditional IRA mrinvest Young Dreamers 18 11-22-2006 11:45 AM
Possible to combine SEP IRA with standard IRA? soupcxan FIRE and Money 2 07-16-2006 12:08 PM

 

 
All times are GMT -6. The time now is 09:16 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.