No SE income to make SEP contribution
My client has been contributing to his SEP IRA all of 2010. His taxes were just done and he has NO SE income for the year (new business). Can he still keep the SEP contributions made and use them as “after tax” contributions, or does he have to remove them for 2010. Will the financial institution move them as a 2011 contribution if we ask them.
Permalink Submitted by Alan Spross on Wed, 2011-03-02 22:09
There are two options, and Option 1 is probably the best:
1) Correct the excess contribution by having it returned with any earnings. The original contributions must be included in income for 2010. Earnings are taxable in 2010 and subject to penalty. He could have the custodian re contribute the corrective distribution as a 2011 SEP contribution if he wishes.
2) He could leave the excess contribution in the SEP IRA, pay a 10% (yes, 10% not 6%) excise tax on his 2010 return using Form 5330. They would then be applied to his 2011 contribution and deductible on the 2011 return assuming contributions are allowable.