SIMPLE error
Client accidently deposited $56K in his SIMPLE plan instead of his brokerage account. When he realized the mistake, he contacted the custodian and money was moved out of SIMPLE into brokerage account.
He received a 1099R showing the full amount as taxable with a distribution code 7.
Questions:
Should this be a distribution Code 8?
How is it reported on his 1040? Can I put the full amount on 5329 as an excess contribution?
Could the custodian have just journaled it to the intended account?
BTW, his Schedule C earnings are about $20K. He discontinued his business in 2022. He did not make any (intentional) SIMPLE contribution for 2022.
Permalink Submitted by Alan - IRA critic on Mon, 2023-02-27 15:44
Because both the deposit and the form of distribution were incorrect, this will be very difficult to correct. Further, the SIMPLE custodian is going to report a SIMPLE contribution on Form 5498 in May which will make it obvious to the IRS that the bulk of the 56k was an excess contribution. The 1099R coded 7 does not correct the excess. Did client ask for a return of excess or did client just request a distribution of 56k? What was the date he received the 56k distribution? Was the first SIMPLE contribution at least 2 years before that?