It used to be that combining different types of retirement accounts was strictly off limits. More recently, though, the IRS has made its rules more flexible in allowing people to consolidate their retirement accounts, and it's now possible for people to combine retirement savings from a 401(k) and a SEP IRA into a single account. Below, we'll take a look at what's involved and what options you have.

What SEP IRAs and 401(k)s are
Both 401(k) accounts and SEP IRAs are accounts that employers provide to employees in order to help them with their retirement savings. 401(k) plans are qualified plans under the laws governing retirement plans, and they have a wide range of attractive features that have led the largest employers in the nation to embrace them on behalf of their workers.

By contrast, SEP IRAs are the accounts associated with a SEP plan, also known as a Simplified Employee Pension plan. SEPs are much easier for employers to set up than 401(k) plans because the amount of paperwork involved is substantially less. Moreover, some employees prefer SEPs because they allow each worker to set up a separate IRA with the financial institution of their choice. That gives workers more flexibility to make whatever investments they choose, rather than being locked into a set menu of investments like most 401(k) plans.

Moving money between accounts
The IRS has made it relatively easy to consolidate retirement accounts. The rollover process allows participants to roll over money from a SEP IRA into a 401(k) or vice versa. You can choose either account to be the one to hold the combined assets.

The only complication comes in if you have a 401(k) that includes a designated Roth account. These Roth 401(k) options allow you to save money on an after-tax basis. But because SEP IRA money is always pretax, you can't roll over Roth 401(k) money into a SEP IRA, and rollovers from the SEP to a designated Roth account are also prohibited. As a result, if you have a 401(k) with a Roth option that you've utilized, you'll typically want to move money out of the SEP into the pretax portion of the 401(k) if you want to end up with just one account.

Just because you can combine money from SEP IRAs and 401(k) plans doesn't mean that you necessarily should. In some cases, it makes sense to have separate pools of money to draw from. For instance, a 401(k) allows participants to make loans, which is not available in a SEP IRA. If you like the investment flexibility of a SEP but want loan access from a 401(k), then keeping both can be the smart move.

If you like to keep things simple, though, combining a SEP IRA and a 401(k) can make a lot of sense. As long as you follow the procedures, IRS rules should let you make the move without too much hassle.

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