How to Borrow From an SEP

How to Borrow From an SEP
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SEP stands for simplified employee pension plan and is a type of individual retirement account (IRA) that employers can set up as a less expensive alternative to a 401k plan to help employees save for retirement. If your employer has set up a SEP IRA on your behalf, you are not allowed to take a loan from your SEP IRA in the same way that you can from a 401k plan. However, if you have a very short-term financial need, you may be able to use a rollover to access the money.

Contact your financial institution to arrange for a rollover. Once per 12-month period, you may withdraw the money from your account and redeposit the money into another similar IRA--such as another SEP IRA account or a traditional IRA--and redeposit the money within 60 days.

Receive the distribution from your financial institution. The money will come in the form of a check or may be directly deposited into your account. The amount will be less than your distribution because 20 percent will be withheld to pay for federal taxes you will incur if you do not redeposit the amount. For example, if you withdraw $20,000, you will only receive $16,000 because $4,000 would be withheld.

Redeposit the money into a similar IRA within 60 days of the distribution. You must redeposit the amount of your distribution, not the amount you received. Continuing the example from step 2, you would have to redeposit $20,000 even though you only received $16,000.

Report the amount of the distribution on line 15a of your form 1040 tax return. However, you do not have to report the amount on line 15b, so it will not be included in your taxable income because you rolled the money over.


  • The Motley Fool warns that the 60-day limit for redepositing the money is very strict and is not extended for holidays or weekends. If you fail to redeposit the money, it will be considered a distribution and will be taxable.