Is there anything in the code that would prevent this? Client has a traditional IRA and is now self employed, as the only employee. He wishes to establish a SEP. Can we simply convert (or re-title) his traditional IRA to a SEP IRA? Any insights would be appreciated.

Regards.

He can rollover funds from the traditional IRA into the SEP.

If a SEP plan is established, the SEP-IRA trustee or custodian may (but is not required to) redesignate the IRA account as a SEP-IRA account.

I believe also that once a SEP contribution is made to a Traditional IRA account it is required to be reported by the trustee/custodian as a SEP account. Some custodians/trustees may require that the funds are kept in separate accounts.

jevd: Please expand on your comment: To whom/what would a trustee/custodian be required to identify an IRA as an IRA that is part of a SEP rather than a plain older IRA? I think you identify SEP contributions separately on a 5498, but where and when would a distinction be drawn between a SEP-IRA and a regular IRA?

There is really no distinction. As we all know a Traditional IRA may hold Traditional Contributions, Rollover Contributions and Employer SEP Contributions. Once a SEP contribution is made to an account, it is a SEP IRA for purposes of 5498 Reporting. See instructions for Box 1,7, & 8 regarding how to report contributions to A SEP account. That is our general understanding. I believe that we have informal responses from the IRS as well.

IRS Instructions for form 5498 HERE: INSTX 5498 & 1099R

I don't see where a distinction is drawn between a SEP IRA and an IRA. Obviously, IRS wants to know if any contributions were made to the IRA under a SEP, but that's about it. If I am missing something in the instructions, so sorry, but can you please tell us exactly where it is?

There is no real distinction. All I'm trying to point out is that once a SEP contribution is made to a Traditional IRA, the 5498 should indicate SEP in box 7. This would apply even in a year when a SEP contribution may not have been made. I've been trying to find the documentation but I think it was informal information. Then again, I may be like Sieve and WDIK. I will continue to research and let you know. Stay tuned.

Respectfully


IRS Manual on SEPS etc.

The IRS doesn't make a distinction in their Manual except to say that Traditional IRA accounts set up to accep SEP contributions are often called SEP IRAs.

4.72.17.2 (09-12-2006)

Technical Overview
The requirements for SEPs are set forth in IRC section 408(k). A SEP is a written arrangement (a plan) that allows an employer to make contributions towards its employees’ retirement without becoming involved in more complex retirement plans. A self-employed individual may also establish a SEP. The contributions are made to traditional Individual Retirement Arrangements (IRAs) (not Roth or SIMPLE IRAs) of the plan participants. Traditional IRAs used to receive contributions under a SEP are often referred to as " SEP-IRAs" , and the SEP participant (IRA owner) can make his or her own regular IRA contributions ($4,000 for 2005, $4,500 if 50 or over) to these IRAs. Under a SEP, IRAs are set up for each eligible employee. They do not have to be set up for excludable employees. These terms are described further below in this section 17.

Maybe this is all there is.

Would you both agree that--

1. A SEP is an IRA that must meet some additional rules?

2. If SEP and IRA contributions are made into same account, boxes 1 and 8 (Form 5498) would both be completed?

3. If SEP and IRA contributions are made into same account, seperate 5498's are not required?

Agreed.