How to terminate a SEP-IRA

Years ago, my wife, who's a real estate agent, was advised to set up a Simplified Employee Pension (SEP-IRA) so she could set aside more annually than a traditional IRA would allow. Now she's earning only half as much and wants to switch to a regular IRA. How can she terminate the SEP?

She must notify the institution where she established the plan that she won't make additional contributions and wants to terminate the contract. Presumably she's the only plan participant, but if she owns the real estate agency and also contributes to SEP-IRA accounts for her employees, she should also tell them that the plan has been terminated. She needn't notify the IRS that she has closed the plan. Keep in mind, however, that annual contributions to a SEP aren't mandatory. So if your wife's earnings may rise again, she might want to keep the plan active rather than limit her future contributions by changing to a traditional IRA.