Can I Contribute to IRA if No Longer Self Employed?

Some people who are self-employed create a simplified employee pension (SEP) individual retirement account (IRA) to allow larger tax-deductible contributions each year to their retirement savings. Knowing how ending your self-employment affects these accounts, as well as your other IRA options, helps you be prepared to adjust your retirement savings strategy.


If you had an SEP IRA so that you could take advantage of larger contribution limits while you were self-employed, you cannot continue to fund the SEP IRA after you are no longer self-employed. However, you can leave the money in the account to continue to grow tax-free. In addition, you do not have to notify the IRS that you are terminating your SEP IRA.

No Taxable Compensation

If you are no longer self-employed and no longer have any compensation income, you cannot contribute to an IRA because IRAs require that you have compensation equal to or greater than your contribution. If you stopped working in the middle of the year, earnings from earlier in the year still qualify you. For example, if you had earned $20,000 before quitting your self-employed job in June, you would be able to use that as compensation to qualify you to contribute to an IRA later in the year.

Now an Employee

If you start a new job as an employee after stopping working for yourself, you can continue to make contributions to an IRA because you have continued compensation. However, if your employer offers a retirement plan, such as a 403(b) plan or government 457 plan, you may not be able to deduct your contributions to a traditional IRA if your adjusted gross income is too high. The limit change depending on which tax filing status you use and the IRS adjusts them annually for inflation.

Consolidation Considerations

If you have money in an SEP IRA that you want to consolidate, your employer may allow you to move the money into the employer plan. However, the IRS does not force employers to accept such rollovers. You can also roll the money into a traditional IRA so that you can continue to make contributions to the account each year, albeit much smaller contributions. When moving the money, the easiest way is through a direct transfer, where your financial institution moves the money on your behalf so that you do not have to complete the rollover yourself or report the move on your taxes.