Can You Borrow From a SEP IRA? Rollovers and Solo 401(k) Options

You cannot borrow from a SEP IRA. The IRS treats every dollar pulled out of any IRA as a distribution, not a loan, and no provision in the tax code lets SEP IRA participants take money out and pay it back with interest the way a 401(k) loan works. The workarounds are narrower than a true loan but real: a 60-day rollover can give you short-term use of the funds, several penalty exceptions can soften a permanent withdrawal, and rolling the account into a Solo 401(k) is the structural fix if you need ongoing loan access.

Why Loans Aren’t Allowed

The tax code draws a hard line between individual retirement arrangements and qualified employer plans. Even though your employer (or you, if you’re self-employed) funds a SEP IRA, the account is legally an individual retirement account under Internal Revenue Code Section 408.¹ Once the money is in the account, IRA rules govern it, and IRA rules have no participant-loan provision. That’s true of traditional IRAs, Roth IRAs, and SEP IRAs alike. Any transaction labeled a “loan” from your SEP IRA is treated as a distribution, with the tax consequences that follow.

The 60-Day Rollover: The Only Real Bridge

The closest thing to borrowing from a SEP IRA is the 60-day rollover. You take a distribution, use the funds for up to 60 calendar days, and redeposit the full amount into the same IRA or another one. Meet the deadline and the IRS treats the transaction as a tax-free rollover rather than a taxable withdrawal.¹

Two limits shape how you can use this. You get one rollover across all your IRAs in any rolling 12-month period. Take a distribution from your SEP IRA in March and roll it back in April, and no other IRA rollover is available to you until the following March.¹ Second, any part of the withdrawal that qualifies as a required minimum distribution cannot be rolled over at all.²

The Withholding Problem

When your custodian cuts you a check from a SEP IRA, they typically withhold 10% for federal income tax unless you opt out on Form W-4R.³ To complete a full tax-free rollover, you have to redeposit the entire original distribution amount within 60 days, including whatever was withheld. The money already sent to the IRS does not count toward the redeposit. You’ll have to cover that gap from other savings.²

Withdraw $50,000 with 10% withheld, and you receive $45,000. To avoid tax on the full $50,000, you still need to deposit $50,000 into an IRA within 60 days. The $5,000 withheld comes back as a credit when you file, but you have to front it in the meantime.

Setting the Distribution Up Correctly

Ask your custodian for a distribution form and select your withholding preference. Note that a trustee-to-trustee transfer, where money moves directly between institutions, is not a rollover and does not start a 60-day clock. That method is for permanent moves and has no once-per-year limit. To use the 60-day strategy, the funds have to be paid to you directly.²

What Happens If You Miss the 60-Day Deadline

Miss the deadline by even a day and the whole withdrawal becomes a taxable distribution. The full amount is added to your ordinary income for the year, which may push you into a higher bracket. If you’re under 59½, a 10% early withdrawal penalty applies on top of the income tax.⁴ For someone in the 22% federal bracket, a missed $50,000 rollover means roughly $11,000 in federal income tax and $5,000 in penalty before state tax even enters.

Self-Certification for a Late Rollover

A missed deadline isn’t always final. Under Revenue Procedure 2016-47, you can self-certify eligibility for a waiver by sending a written statement to the receiving IRA custodian explaining why you were late. Qualifying reasons include a financial institution’s error, serious illness affecting you or a family member, a family member’s death, a misplaced check, severe damage to your home, incarceration, and postal errors.⁵ The IRS can still challenge a self-certification on audit, but it’s far cheaper and faster than the older private letter ruling route. If one of the listed events genuinely caused the delay, pursue self-certification before accepting the tax bill.

Penalty Exceptions If You Have to Take the Money Permanently

When a rollover doesn’t fit, a permanent withdrawal may be your only option. Income tax still applies, but several exceptions can eliminate the 10% early withdrawal penalty for those under 59½. All of the following apply to SEP IRAs.⁶

Substantially equal periodic payments (SEPP): a series of roughly equal annual withdrawals based on your life expectancy, which must continue for at least five years or until you turn 59½, whichever is later. Modify the schedule early and you owe recapture tax on all the penalties you avoided.⁷
Unreimbursed medical expenses above 7.5% of your adjusted gross income for the year.
Higher education expenses for you, your spouse, children, or grandchildren at eligible institutions, including tuition, fees, books, and room and board.
First-time home purchase, up to $10,000 lifetime. “First-time” means you haven’t owned a home in the previous two years.
Birth or adoption, up to $5,000 per child within one year of the birth or adoption finalization.
Terminal illness, with no dollar limit, if a physician certifies your condition is expected to result in death within 84 months.
Disability, if you can demonstrate a total and permanent inability to engage in substantial work.
Emergency personal expenses under SECURE 2.0, up to $1,000 per year for an unforeseeable personal emergency. You have three years to repay and generally can’t take another emergency distribution during that period unless you’ve repaid or are on track.

SEPP suits people who need steady access to funds over years rather than a one-time lump sum. The trade-off is rigidity: you’re locked into the payment schedule, and the permitted calculation methods (life expectancy, amortization, annuity) cap how much you can pull annually. It’s a long-term income stream, not emergency cash.

Don’t Pledge Your SEP IRA as Collateral

Some people try a different angle: instead of withdrawing, they offer the SEP IRA as collateral for an outside loan. This is worse than a distribution. The IRS treats pledging any portion of an IRA as security for a loan as a prohibited transaction, and the pledged portion is immediately treated as distributed and taxed. If the IRS finds a prohibited transaction, the entire account can lose its tax-exempt status as of January 1 of that year, meaning the full balance is treated as distributed at once, plus the 10% penalty if you’re under 59½.⁸ No legitimate lender should ask for this. Agreeing to it would collapse the account without putting cash in your hand.

Rolling Into a Solo 401(k) for Actual Loan Access

If you’re self-employed and expect to need loan access more than once, the structural fix is converting to a Solo 401(k). Solo 401(k)s fall under the employer-plan rules that authorize participant loans. SEP IRA assets roll into a Solo 401(k) directly, without taxes or penalties, and there’s no waiting period like the one that applies to SIMPLE IRAs.²

Eligibility is narrow. Your business must have no full-time employees other than you and your spouse. You’ll need an Employer Identification Number, and the plan document has to be in place by December 31 of the year you want to make employee deferrals. Contribution room is comparable to a SEP IRA: for 2026, up to $24,500 in employee deferrals ($32,500 if you’re 50 or older), plus profit-sharing contributions up to 25% of compensation, with a combined cap of $69,000.⁹ That matches the SEP IRA’s $69,000 cap.¹⁰

The cost is paperwork. A Solo 401(k) needs a written plan document, and once total plan assets exceed $250,000 you must file Form 5500-EZ annually. A SEP IRA has almost no ongoing filing. If you’ll actually use the loan feature, the trade is worth it. For a one-time need, the 60-day rollover or a penalty exception is simpler.

How the Resulting 401(k) Loan Works

Once funds are inside a Solo 401(k) or another 401(k) you participate in, Section 72(p) sets the loan rules. The maximum is the lesser of $50,000 or the greater of $10,000 or 50% of your vested account balance.¹¹ The $10,000 floor matters for smaller accounts: a $15,000 balance can support a $10,000 loan, not $7,500.

Repayment must be in substantially level installments, at least quarterly, over no more than five years. Loans used to buy your primary residence can run longer, often 15 to 25 years depending on the plan.¹² Interest is typically prime plus one or two points, paid back into your own account.

The risk is on the repayment side. Miss payments and the outstanding balance becomes a deemed distribution: income tax on the unpaid amount, plus the 10% penalty if you’re under 59½.¹³ Many plans also accelerate the remaining balance if you leave the employer or wind down the business behind a Solo 401(k). A 401(k) loan is only a good tool if you’re confident you can carry the payment schedule to the end.

1
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
2
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
3
Internal Revenue Service. Publication 590-B – Distributions From Individual Retirement Arrangements (IRAs)
4
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
5
Internal Revenue Service. Revenue Procedure 2016-47 – Waiver of 60-Day Rollover Requirement
6
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
7
Internal Revenue Service. Substantially Equal Periodic Payments
8
Internal Revenue Service. Publication 590-A – Contributions to Individual Retirement Arrangements (IRAs)
9
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
10
Internal Revenue Service. SEP Contribution Limits (Including Grandfathered SARSEPs)
11
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts – Section: Loans Treated as Distributions
12
Internal Revenue Service. Retirement Topics – Loans
13
Internal Revenue Service. Plan Loan Failures and Deemed Distributions