return of excess employer contribution
Hello,
we have a client that has made too much employer contribution and they were removing that . They also wanted to make their full participant contribution of 5000. does the removal of excess employer contribution that gets recorded on the tax return as the participant return of excess cause a shortage for the client to make his regular contribution?
Permalink Submitted by Alan Spross on Wed, 2011-04-20 21:29
There are several potential causes for this issue. Did the client get a written notification for the exact reason for the excess amount. Eg is this an excess annual addition under 415c, an error by the employer or something else? What type of plan is this?
Also, the figure of 5,000 relates to IRA contributions, or are you referring to a catch up contribution (limit 5,500)?
Permalink Submitted by Shahpar Naghshineh on Wed, 2011-04-20 21:56
This is a SEP IRA. I am sorry for not clarifying.
Permalink Submitted by Alan Spross on Wed, 2011-04-20 22:09
A SEP IRA owner can make both SEP IRA and regular traditional IRA contributions to the SEP IRA. I assume the 5,000 is a traditional IRA contribution, and the removal of the excess SEP IRA contribution does not affect the traditional contribution. But any SEP contribution that remains means that the client is a retirement plan participant for the year IN WHICH the contribution is made and therefore the TIRA contribution may not be deductible. If it cannot be deducted, Form 8606 should be filed to show the contribution as non deductible.