How do you borrow against an SEP IRA?


Quick Answer

Owners of SEP IRA accounts are not allowed to take out loans against their plans. However, those with SEP IRA accounts are able to take short-term loans if they treat the loans as rollovers. Alternatively, they can roll the funds over into a qualified retirement plan that allows loans.

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Full Answer

Under IRS regulations, if an SEP IRA owner attempts to take out a loan against the plan, the IRS no longer considers the plan an IRA, disqualifies it and considers the assets in the plan income subject to taxes. The IRS only allows loans from qualified retirement plans such as 401(k) plans. If the business the SEP IRA owner works for has a qualified retirement plan that allows loans, he can roll the funds in the SEP IRA over into a 401(k) or comparable plan and take out a tax-free loan for up to half the balance in the plan.

If the SEP IRA owner doesn't want to move the funds into a different plan, he can initiate a rollover of the funds and consider it a short-term loan as long as he replaces the funds in full in less than 60 calendar days. The IRS sometimes waives the 60-day time limit for exceptional circumstances. Only one such rollover is allowed in a 12-month period.

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