Correcting SEP IRA
Hello-
Client owns a US based business and a foreign business. The US business has no employees but the foreign corporation does. I am trying to shift through the rules regarding controlled group, nonresident aliens, source income, etc. to see who needs to be covered by the SEP and not.
If the client makes a SEP IRA contribution for himself and later finds out he should have been making contributions for these other 100 employees, what corrective measures must be taken?
I am thinking of a nightmare scenario where the client has to contribute a make up contribution for these 100 employees. Is there instead a corrective measure that involves just undoing the client’s contribution?
The client’s contribution is small ($30K) and am wondering if it is worth the risk vs. just investing in an after-tax account.
Thank you!
Permalink Submitted by Alan - IRA critic on Wed, 2023-01-25 23:36
No expert in this area, but the 5305 SEP indicates that employees can be excluded if receiving wages for work performed outside the US (foreign nationals) since those wages are not treated as US source income. The 5305 provides a box to specifically exclude such employees.
Permalink Submitted by IRAQuestion5 on Thu, 2023-01-26 16:03
The client did check that box – “does not include certain nonresident aliens,” so I think they are okay but I am wondering in general.If someone only makes contributions to their own SEP for a few years and accidentally didn’t cover 100 employees that they should have, is the only corrective action to make up contributions to those 100 employees?