SEP IRA OUT, SOLO 401K IN
I WILL BE CONTRIBUTING TO A SOLO 401K FOR 2008. EARLIER THIS YEAR I SENT AN ADVANCE CONTRIBUTION ($8000) TO MY SEP IRA. HAVE REQUESTED RETURN OF MY $8000 “EXCESS CONTRIBUTION” NOW WORTH $7200. WHAT IS TAX CONSEQUENCE OR RECEIVING $8000 VS. $7200. (THIS IS MY FIRST YEAR OF RMD).
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Permalink Submitted by Denise Appleby on Wed, 2008-09-24 22:22
You could have ( and probably should have) left the contribution in the SEP IRA, as contributions to SEP IRAs receive the same tax-treatment (from an employer deduction perspective) as profit sharing contributions to a Solo-k.
For example: Assume income $100,000 ( incorporated business): Individual is under age 50
[b]Salary deferral maximum $15,500[/b]. Must be made to the solo-k
[b]Profit sharing maximum: $25,000 (25% of w-2 wages). [/b]Can be made to the solo-k or the SEP IRA.
[i][b]Note[/b]: If the SEP is funded the same year as the solo-k, the SEP Adoption agreement cannot be the IRS model-5305-SEP. Instead, you would need to use the financial institution’s prototype SEP Agreement, if they have one. Or you would need to get your own individually-designed SEP. Using the prototype is cheaper, easier and simpler.[/i]
The issue: Unless you will contribute the maximum amount possible to the solo-k, the SEP contribution may not be an excess (after-all). This could create a problem as there are no provisions to remove a SEP contribution as a return-of-excess, unless the amount is truly an excess contribution.
To answer your question (finally 🙂 ), a return of excess contribution from a SEP IRA , with no earnings, would be nontaxable