SEP Employer Contributions vs. Employee

Submitted by John Boyle on Thu, 2017-12-07 20:50

A self-employed client (no employees) contributed to her SEP IRA, but the funds were coded as “employee contributions” by the investment company. Her $6500 maximum was reached (for employee contributions), but she wants to contribute more to her SEP (with employer contributions), as well as make a $6500 Roth contribution. Does the initial error need to be fixed? How would it affect her tax return if left alone?



Submitted by Alan - IRA critic on Fri, 2017-12-08 00:10

  • She must have the employee contribution (a TIRA contribution reported in Box 1 of Form 5498) returned with allocated earnings. This does not affect SEP contributions (reported in Box 8 of Form 5498) but will preserve the ability to make a Roth IRA contribution for the applicable year, which I assume is 2017.
  • If not corrected, there is no contribution space for the Roth contribution, and the TIRA contribution is likely to be non deductible unless no SEP contribution is to be made IN calendar year 2017.A SEP contribution triggers the income limits over which a TIRA contribution cannot be deducted.

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