What To Do About Excess Sep Ira Contributions
When you participate in a sep ira and you also make contributions to your ira you may find that you occasionally have a sep ira excess contribution. I will be discussing some of the ways this can happen, what penalty you may be facing, and what you can do about it.
If you roll-over an ira into your sep ira and don't think about what you are your company has already contributed you may run into a sep ira excess contribution without realizing it. If you discover it before you file your taxes you can remedy the situation by either filing to withdraw the overage or forward it to next year (assuming that it won't over contribute next year).
If you make contributions to your ira that is connected to your sep ira plan you may have a sep ira excess contribution if you don't keep track of the maximum and consider what the company you work for contributes.
In order to avoid a 6% excise tax, the excess (or nondeductible) contribution must be withdrawn by your tax-filing deadline (including extensions). Any earnings attributable to the excess contribution must also be withdrawn and are included as income in the year for which the excess contribution was made. [IRC §408(d)(4)] (Providing an account statement showing the excess amount(s) will expedite the processing of your request.) If you fail to withdraw your sep ira excess contribution before your tax-filing deadline (including extensions) you will have to pay the 6% exise tax. You should check with your tax man to see if the withdrawed amount will be subject to ordinary income tax. It usually does but check with the expert just to be sure. Employers sep ira excess contribution The excess amount may be carried over to be deductible in the succeeding taxable year, subject to the plan's deductibility limit. [IRC §404(h)(1)(C)] The employer may be subject to a 10% excise tax on any nondeductible employer contribution that remains in the account at the close of the year. [IRC §4972] The SEP-IRA participant may withdraw the excess contribution and earnings without penalty by his or her tax filing deadline (plus extensions). The earnings on a sep ira excess contribution is taxed in the year the contribution is made. Contributions left in the SEP-IRA after the tax filing deadline (plus extensions) are subject to a 6% excise tax until withdrawn, and may be subject to the 10% tax penalty on withdrawal if the participant is under age 591/2. [Instructions to IRS Form 5305-SEP]
| 
