To roll over a SEP IRA to a Solo 401(k), you first establish the Solo 401(k) plan with documents that accept incoming rollovers, obtain a separate EIN for the plan trust, open a brokerage account titled in the trust’s name, and then instruct your SEP IRA custodian to send the balance directly to the new account. Done as a direct trustee-to-trustee transfer, the move is tax-free and reportable but not taxable.
The order matters. The receiving plan has to exist, with the right paperwork and its own account, before any money leaves the SEP IRA. Get that sequence wrong and you either miss a deadline that costs you a year of contributions or trigger withholding and a 60-day clock you didn’t need to start.
Why Self-Employed Savers Make This Move
A SEP IRA accepts only employer contributions, calculated as a percentage of compensation. For a self-employed person the effective rate lands near 20% of net self-employment income, so you need roughly $360,000 in net earnings before the SEP gets you close to the $72,000 annual ceiling for 2026.1Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs
A Solo 401(k) contributes in two ways. There is an employee salary deferral of up to $24,500 for 2026, available regardless of income, plus an employer profit-sharing contribution of up to 25% of compensation on top.1Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs The combined ceiling is the same $72,000, but you reach it at a much lower income level. Catch-up contributions add $8,000 for ages 50–59 and 64+, or $11,250 for ages 60–63.2Fidelity. Solo 401(k) Contribution Limits for 2025 and 2026
Two other features often drive the decision. The Solo 401(k) allows Roth treatment on the employee deferral; the SEP IRA has no Roth option. And if plan documents permit, you can borrow the lesser of $50,000 or 50% of the vested balance and repay it over five years.3Internal Revenue Service. Retirement Topics – Plan Loans SEP IRAs don’t permit loans.
There is a fourth reason that pulls people through the process even when contribution limits aren’t the issue: clearing the pro-rata rule for backdoor Roth conversions. The IRS treats all your traditional IRA balances, including SEP IRA assets, as a single pool when calculating the tax on a Roth conversion. A large SEP balance makes nearly all of a backdoor conversion taxable. Rolling the SEP into a Solo 401(k) takes those pre-tax dollars out of the IRA aggregation calculation, because a Solo 401(k) is not an IRA. Balances are measured as of December 31, so the rollover has to settle before year-end to help for that tax year.
One boundary worth naming: the Solo 401(k) is only available if your business has no full-time employees other than you and your spouse. Hire a full-time, non-owner employee later and the plan no longer qualifies as a one-participant plan.
Set Up the Solo 401(k) Before You Touch the Money
The receiving plan must exist and be capable of accepting a rollover before you initiate the transfer. Four things need to be in place.
Sign the Plan Document by December 31
The plan document has to be signed by December 31 of the tax year you want to make employee deferrals for. Employer profit-sharing contributions can be funded later, up to your tax-filing deadline including extensions, but the plan itself must exist by year-end.4Internal Revenue Service. One-Participant 401(k) Plans Miss the date and you lose the employee deferral for the entire year.
Confirm the Documents Allow Rollovers and Loans
Setting up the plan produces a Plan Adoption Agreement and a Trust Agreement, which spell out eligibility, contributions, distributions, and vesting.5Internal Revenue Service. A Guide to Common Qualified Plan Requirements Two provisions are easy to overlook and hard to add later. The plan must specifically permit incoming rollovers; not every template includes that language. And if you want the ability to borrow from the plan, the loan feature has to be in the documents from the start.
Get an EIN for the Plan Trust
The Solo 401(k) trust needs its own Employer Identification Number, separate from your Social Security number and separate from your business EIN. The IRS online application issues one immediately; Form SS-4 by fax takes about four business days, and by mail four to five weeks.6Internal Revenue Service. Get an Employer Identification Number7Internal Revenue Service. Instructions for Form SS-4 Designate the applicant type as Trust or Plan Administrator. Using your SSN or business EIN on the plan’s investment account creates compliance problems that are painful to untangle later.
Open the Investment Account in the Trust’s Name
With signed documents and an EIN in hand, open a brokerage or custodial account titled in the name of the Solo 401(k) trust and using the plan’s EIN. The custodian will want a copy of the Plan Adoption Agreement and the EIN confirmation letter. Do this before you initiate the rollover from your SEP IRA. Finding a paperwork problem after the money is in transit derails the timeline.
Move the Money by Direct Rollover
The IRS permits rolling SEP IRA assets into a qualified plan like a Solo 401(k).8Internal Revenue Service. Rollover Chart You have two ways to do it, and one is clearly better.
Direct Rollover
In a direct rollover the SEP IRA custodian sends the funds straight to the Solo 401(k) custodian. The money never touches your personal account. Contact your SEP IRA custodian and request a direct rollover, providing the exact name on the Solo 401(k) trust account, the new custodian’s details, and the plan’s EIN. The transfer typically goes by wire or by check made payable to the Solo 401(k) trust.
The direct method avoids withholding, has no 60-day deadline, and doesn’t count against the one-rollover-per-year rule. There is nothing to go wrong. Use it.
Indirect (60-Day) Rollover
With an indirect rollover the custodian distributes the funds to you personally, and you have 60 days from the date of receipt to deposit the full amount into the Solo 401(k). Miss that window and the distribution becomes taxable, with a 10% early withdrawal penalty if you’re under 59½.9Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
Because a SEP IRA is legally an IRA, the withholding rules are the IRA rules, not the employer-plan rules. The default federal withholding is 10%, not the 20% that applies to distributions from a traditional 401(k), and you can elect out of withholding entirely on the distribution request form.10Internal Revenue Service. Simplified Employee Pensions (SEPs) – Chapter 15 If 10% is withheld and you want to roll the full amount, you’ll need to make up the shortfall from other funds within 60 days. Anything not redeposited in time is taxable.
The IRS also limits indirect IRA-to-IRA rollovers to one per 12-month period across all your IRAs.9Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions An IRA-to-401(k) rollover is generally not subject to that limit, but the direct method sidesteps the question entirely.
Liquidate First if Needed
Most custodians will only transfer cash, so you’ll typically need to sell any investments in the SEP IRA before initiating the rollover. Some plan providers accept in-kind transfers of specific assets, but both custodians have to agree and the documentation is specialized. Plan for an extra week or two if non-cash assets are involved and you want them liquidated cleanly before settlement.
Report the Rollover on Your Tax Return
A properly executed rollover is tax-free, but it still shows up on paper. The reporting flows from the SEP IRA side.
Form 1099-R From the SEP Custodian
Your SEP IRA custodian will issue Form 1099-R for the distribution.11Internal Revenue Service. Form 1099-R The critical field is Box 7, the distribution code. For a direct rollover from a SEP IRA to a Solo 401(k), the custodian should enter Code G, which tells the IRS the funds went directly to an eligible retirement plan.12Internal Revenue Service. Instructions for Forms 1099-R and 5498 For an indirect rollover the code will be a normal distribution code (Code 1 if you’re under 59½, Code 7 if not), and the burden falls on you to prove the rollover was completed.
The Solo 401(k) does not issue Form 5498 to confirm receipt. Form 5498 is IRA-specific, and a Solo 401(k) is not an IRA. Your Solo 401(k) custodian will have internal records of the incoming deposit, but no matching IRS form is generated on the receiving side. Keep your own records: the rollover request, custodian confirmations, and account statements showing the funds arriving.
Form 1040 Entries
Because the SEP IRA is an IRA, the distribution goes on Form 1040 lines 4a and 4b, not on lines 5a and 5b. Enter the total distribution on line 4a. For a completed tax-free rollover, enter zero on line 4b and write “Rollover” next to it.
Hold the 1099-R and your paperwork indefinitely. If the IRS later questions the rollover and you can’t produce documentation, the distribution can be reclassified as taxable income with the 10% early withdrawal penalty stacked on top.13Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans Other Than IRAs
What Changes After the Money Arrives
A Solo 401(k) carries more administrative weight than the SEP IRA you left behind. Three items matter most in the year of the rollover.
You May Cross the Form 5500-EZ Threshold Immediately
Once the combined assets across all your one-participant plans exceed $250,000 at year-end, you must file Form 5500-EZ with the IRS.14Internal Revenue Service. Financial Advisors – Are Assets in Your Client’s One-Participant Plans More Than $250,000 The filing deadline is the last day of the seventh month after the plan year ends, so July 31 for a calendar-year plan. Late penalties run $250 per day up to $150,000 per return.15Internal Revenue Service. Penalty Relief Program for Form 5500-EZ Late Filers Rolling a sizable SEP IRA into a Solo 401(k) can push you over the threshold in the same year the plan opens. Put the deadline on your calendar the day the rollover settles.
Contribution Deadlines Split
Going forward, employee salary deferrals into the Solo 401(k) must be contributed by December 31 of the tax year. Employer profit-sharing contributions can wait until the business’s tax-filing deadline, including extensions.4Internal Revenue Service. One-Participant 401(k) Plans The split lets you finalize your net income before calculating the employer portion, which is useful when self-employment income fluctuates.
Prohibited Transaction Rules Now Apply
As a Solo 401(k) sponsor you’re a plan fiduciary, and the IRS treats fiduciaries strictly. A prohibited transaction between the plan and a “disqualified person” (you, your spouse, your parents, your children and their spouses, or an entity your family controls) triggers an excise tax of 15% of the amount involved per year, rising to 100% if not corrected within the taxable period.16Office of the Law Revision Counsel. 26 USC 4975 – Tax on Prohibited Transactions Buying or selling property between yourself and the plan, lending between the plan and family, using plan-owned property personally, or performing services on plan-owned property all qualify. The plan also cannot hold collectibles. If you plan to use the Solo 401(k) for alternative investments, get advice before each transaction.17Internal Revenue Service. Retirement Topics – Tax on Prohibited Transactions
Plan Loans Need Real Documentation
If you use the loan feature, the loan must have a promissory note, a reasonable interest rate, and a repayment schedule of no more than five years (longer only for a primary residence purchase), with payments made at least quarterly.3Internal Revenue Service. Retirement Topics – Plan Loans Stop paying or miss the payoff deadline and the outstanding balance is treated as a taxable distribution, with the 10% early withdrawal penalty on top if you’re under 59½.13Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans Other Than IRAs There’s no employer tracking your repayments, so the calendar reminders are yours to set.