What a confusing mess. This goes back to calendar year 2005. I am a small business owner -three employees- and make SEP contributions for myself and my employees. It is a Form 5305 SEP IRA.

In the fall of 2005 one of my employees discovered that he had cancer in his throat. He had no medical insurance, had to quit work, and ended up qualifying for disability to pay for the surgery, but of course had to give up most of his assets, including his IRA. He will be on disability for a long time, maybe his whole life.

I filed my 2005 taxes (with extensions) in September of 2006. I made 2005 SEP IRA contributions for my employees at that time, including my now former employee that had the cancer, who is now on SS disability.
Because that employee had cashed in his IRA to qualify for disability, the IRA company sent back my check saying that he no longer had an IRA with them to accept the contribution.
My financial advisor said to issue a replacement check to my former employee’s bank, “HometownBank, fbo John Doe” and they could set up an IRA for him, which he could then just close out. I wrote the check, (about $6000) and he took it to the bank, where they said they couldn’t set up an IRA, the amount was too much.
That is the situation now. My former employee still has the check (dated in Sept 2006.)

Now a new financial advisor tells me that employees can administer SEP IRA contributions as they see fit, that all I do is make the contribution. I can just make out a check directly to the former employee, that he can do whatever he wants with the money, and that any income tax and withdrawal penalties are his responsibilities, not mine. This seems MUCH TOO EASY for anything that involves tax law!
Any comments or opinions greatly appreciated.