SEP IRA contribution disaster
Hi, I have a question.
I had an extension for my SEP IRA filing deadline to 10/15/2012 for my 2011 taxes. I sent in a post marked check to my SEP company on time. The check came back without being deposited because I made the check out to my self, and not to the SEP IRA company/custodian. I screwed up. 3 years ago they took this without issue, but their procedures changed 2 years ago and I did not know. Apparently last year i sent it in correctly made out to the custodian, but this year i screwed up.
My FA called up the department that handles this, and he was told that its not the company’s fault because I did not write out the check correctly; postmarked or not. He spoke with several others and was basically told this:
The custodian (SEP company) can take the returned check as long as it is endorsed in the back, since I made the check out to my self.
He asked if this will be coded for 2011 or 2012 since it has to be sent in again, and they gave him a vague answer. He was told that unlike traditional IRAs, where the reporting of the contribution year is done by the custodian, SEP IRA contribution year reporting is not done by the custodian, but by the administrator/CPA of the plan (“Third party”). All that the custodian does is to deposit the check for the year they are told to do it for, so they have no involvement or liabilities. Meaning, I can still tell them to code it as 2011.
Anyone know what all this is about? I have a $49k check sitting around and a potential tax disaster on my hand.
Please help! Thank you
Permalink Submitted by Jose Morales on Thu, 2012-11-08 23:17
SEP contributions are reported on a calendar year basis, not a tax year basis. It wouldn’t matter what day of the year you made a SEP contribution within calendar year 2012 or what tax year you wanted to identify the contribution as being for, it will be reported as a SEP contribution on a 2012 5498, which will not be generated until 2013. The custodian doesn’t have to know what tax year you are making a SEP contribution for, as it won’t change the way in which they report the contribution anyway. However, they may not be comfortable knowingly taking a contribution that you tell them is for tax year 2011 when the deadline for such a contribution has passed out of a fear that you may try to hold them liable in the event you are audited by the IRS.
Permalink Submitted by Alan Spross on Thu, 2012-11-08 23:27
You and the IRS receive SEP IRA contribution information on Form 5498 issued by the IRA custodian. Unlike other IRA types, SEP (or SIMPLE) IRA contributions are NOT assigned to a specific year by the custodian. When the IRS receives the 2012 5498 showing a SEP contribution, the contribution is considered EITHER a 2012 contribution or a 2011 SEP contribution MADE in 2012. For this reason, the 5498 will not document either the date of the contribution OR the year it applies to, and the IRS therefore has non-conclusive matching information for the 2011 tax return. Since the IRA custodian does not assign years, there is no benefit in arguing with them over the deadline since their 5498 will be the same either way. Of course, re submitting the contribution and telling them it is for 2012 should result in acceptance of the contribution, but that could turn into tax cheating.
If you wanted to be aggressive (VERY aggressive) on this issue and you can prove you mailed the first check by 10/15/2012 via post mark or other evidence and your bank balance at the time was sufficient, you could take the position that clerical requirements were the only reason your check was not accepted by the SEP custodian. It may be a weak argument if the IRS contacts you, but at least you have an explanation of sorts.
Permalink Submitted by john c on Fri, 2012-11-09 00:25
Thank you for your responses. Here is what they told me:
“Reporting of the actual tax year of the contribution is done by the SEP admin. We can indicate it as a 2011 contribution for record keeping purposes, but all reporting for SEP contribution is done by the plan admin. Client should contact the SEP admin to check their deadline for 2011 contributions.”
Any idea on the English version of this? On one hand they keep telling me the IRS will consider the payment not met in time because the check was not in good order. On other hand, is that response above about “record keeping purposes”. This screams vagueness!
Permalink Submitted by Jose Morales on Fri, 2012-11-09 00:48
[quote=”[email protected]“]Thank you for your responses. Here is what they told me:
“Reporting of the actual tax year of the contribution is done by the SEP admin. We can indicate it as a 2011 contribution for record keeping purposes, but all reporting for SEP contribution is done by the plan admin. Client should contact the SEP admin to check their deadline for 2011 contributions.”
Any idea on the English version of this? On one hand they keep telling me the IRS will consider the payment not met in time because the check was not in good order. On other hand, is that response above about “record keeping purposes”. This screams vagueness![/quote]
The english version:
1. We do not report for which tax year a SEP contribution is made, that is left to the entity/person making the SEP contribution when they file their taxes.
2. If you want to write “2011” on a contribution form when making a SEP contribution, knock yourself out, as it won’t change the way we would report the contribution regardles of when it was deposited.
3. Please consult with your plan administrator to determine what your contribution deadline is, as the custodian does not determine this for you. The custodian can only make reference to the deadline being your tax filing due date, plus extensions.