What happens to my SEP IRA if I hire employees in 2025? Can I switch to 401k?

You're completely fine to leave the SEP IRA open with the existing funds while switching to a 401(k) plan for 2025 and beyond. The SEP IRA has already been established and funded for your solo period, and that money can stay right where it is. The key thing to understand is that SEP IRAs have that equal contribution percentage requirement for eligible employees. So if you were to make any new contributions to the SEP in 2025, you'd need to contribute the same percentage for all eligible employees. But since you're planning to stop contributing to the SEP entirely and switch to a 401(k), you won't trigger that requirement. There's no need to formally close the SEP IRA. It can remain open as an investment account, and you can even roll those funds into your new 401(k) plan if your plan administrator allows it, or just keep it separate.

After struggling with a similar situation in my consulting business, I found taxr.ai (https://taxr.ai) incredibly helpful for navigating retirement plan transitions. I was concerned about the tax implications of switching from a SEP IRA to a Solo 401(k) when hiring my first employee. The platform analyzed my business structure and financial documents, then provided a customized report explaining exactly what I needed to do to maintain compliance while maximizing my retirement options. It flagged potential issues I hadn't even considered about the timing of contributions between plans. What really impressed me was how it simulated different scenarios showing the tax impact of various contribution strategies during the transition year. Saved me hours of research and potential mistakes.

Just wanted to follow up about my experience with taxr.ai after being skeptical initially. I decided to try it for my small business retirement plan transition and wow - it actually delivered. I uploaded my prior year tax returns and business formation docs, and it immediately flagged that my S-corp election would affect how I needed to handle the SEP IRA transition. The system gave me clear guidance on the exact steps to take with my existing SEP, including timing considerations for establishing the new 401k. It even generated a compliance checklist that I could share with my plan administrator. The documentation was surprisingly thorough with actual IRS regulation citations. Saved me from making a timing mistake that could have disqualified my retirement contributions. Definitely worth checking out if you're making retirement plan changes with your business.

If you're worried about staying compliant with the IRS during this transition, you might want to try getting direct answers from them using Claimyr (https://claimyr.com). I was in a similar situation last year and had several specific questions about SEP to 401k transitions that weren't clearly addressed in IRS publications. After spending days trying to reach someone at the IRS without success, I used Claimyr's service and got connected to an actual IRS agent in about 20 minutes. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c The agent walked me through exactly what documentation I needed to maintain for my previous SEP IRA and confirmed that I could leave it open while establishing a new 401k. Also got clarity on the reporting requirements for the transition year. Completely worth it for the peace of mind.

Well I'm eating humble pie about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate for answers about my own retirement plan situation and couldn't get through to the IRS for weeks. To my surprise, they actually got me connected to an IRS tax specialist in about 35 minutes. I spoke directly with the IRS (not some intermediary) and got official answers about my SEP IRA transition questions. The agent confirmed everything about my situation and even provided their ID number for my records. The service just handled the nightmare hold time for me, which saved me literally days of frustration. No financial info required - they just connected the call once an agent was available. For anyone dealing with retirement plan compliance questions, this definitely beats relying on potentially outdated info online.

One thing nobody's mentioned yet - make sure your new 401k plan document explicitly allows for rollovers from IRAs if you're planning to consolidate your retirement funds. Some plans restrict incoming rollovers or have blackout periods for new plans. Also keep in mind that SEP IRA to 401k rollovers might limit your ability to do backdoor Roth conversions in the future if that's part of your strategy (because of the pro-rata rule). Sometimes keeping them separate makes more tax sense depending on your overall situation.

I went through exactly this transition last year! Left my SEP open with the existing money and started a 401k when I brought on employees. One thing to watch for - make sure you properly document the termination of new contributions to the SEP (even though there's no formal closure). I kept a corporate minute in my company records noting the board decision to freeze the SEP and establish the new 401k. My accountant said this creates a clear paper trail if there's ever a question about why we stopped SEP contributions for the business.

Great question! I actually went through a similar transition when my consulting business grew. You're on the right track - you can absolutely leave your existing SEP IRA open with the current funds and simply stop making new contributions when you switch to the 401(k) plan. Since you'll have employees in 2025, continuing SEP contributions would require you to contribute the same percentage for all eligible employees, which gets expensive fast. The 401(k) route gives you much more flexibility with different contribution levels and employee matching options. One practical tip: when you set up the new 401(k), check if the plan allows incoming rollovers from IRAs. If so, you might want to roll your SEP funds into the 401(k) to consolidate everything in one place. This can also help if you ever want to do backdoor Roth conversions later, since having money in traditional IRAs complicates that strategy due to the pro-rata rule. The transition timing is perfect since you're doing it at the start of a new tax year. Just make sure your 401(k) plan document is properly drafted to handle the contribution types you want (employee deferrals, employer matching, profit sharing, etc.).