SEP-IRA employee contribution
I was eligible for my company’s SEP-IRA in June 2014. I did not open the SEP-IRA account until March of this year (2015) as I was told that they would just deposit one large check. My company is now saying they can’t make the distribution to my account for last year (2014) since it is after December 31st. This just seems wrong. Can someone point me to a resource which would help me answer this question? Is my employer correct? I have been scouring the IRS website and seem to see that there are three ways to correct plan mistakes (and I would assume that this is a plan mistake) but that the employer also has until their tax filing deadline (or extension) to make the contribution for the previous year.
Thanks so much!!!!
Permalink Submitted by Alan - IRA critic on Sun, 2015-04-05 15:51
Were you provided with a copy of the 5305 SEP? Are you sure you were eligible for contributions? If so, why did the company not set up the SEP IRA for you?
Permalink Submitted by Jose Morales on Mon, 2015-04-06 15:52
The employer does have until their tax filing deadline, including extensions, to make a contribution for any particular tax year. When you open your IRA account to receive the funds has absolutely no bearing on the contribution the employer makes and how it is reported. If it turns our you are eligible for a 2014 contribution and they do not make one they would have to take corrective action, as an equitable contribution is mandatory for all eligible employees. You may want to have them review Publication 560 which covers retirement plans for small businesses. It can be downloaded for free from the IRS website.
Permalink Submitted by David Mertz on Mon, 2015-04-06 16:32
If this is a SARSEP, you wouldn’t be able to initiate elective deferrals for 2014 after year-end, but the employer is still required to make an employer contribution if you are an eligible employee, the same as for a regular SEP-IRA.
Permalink Submitted by Darcie Vaughan on Mon, 2015-04-06 23:00
I was eligible in June of 2014. I was told I had to open an account. We figured out the papers I needed to sign but when I had them all ready, the person who needed to sign them, our president, was out of the office on both business travel and for the passing of her father. I finally had her sign them in 2015 and then opened the account. I don’t recall if I received the 5035 SEP. I will ask for a copy of it to know for sure as it looks like many of the other docs associated with what I had to submit to open the account. They didn’t set up the account for me because I was told I had to set it up myself which made sense. Should they have set it up for me to stay in copliance with the plan?From what I can tell, they must make the contribution for 2014 – if not, they are out of compliance with the plan and that would put everyone in jeopardy. Right? They are worried it will be booked as a 2015 expense and also show they are paying me more than everyone is getting this year as it would be a lump sum for all of last year. I am certain there is a way to deal with it but none of the docs i can find online are clear. I read the publication 560 but that wasn’t terribly helpful either. And, now I just got off the phone with our HR person who says that our “plan” has been in place for years and that everyone has their own individual accounts at different institutions so the rules are different. She confirmed that the distribution for last year can’t be made. Argh. How is that possible? Any assistance you can provide (and have provided) is amazingly helpful. Thank you so much!Thanks all for your input and guidance!
Permalink Submitted by Jose Morales on Tue, 2015-04-07 00:16
Yes, you would open your own account. The only time an employer should be opening an account on behalf of an employee when maintaining a SEP would be when the employee either refuses to open their own IRA or the employee is deceased. They should have given you a 5305 SEP, but that is a technicallity which is separate from your IRA and the 2014 contribution. Your employer needs to understand that while SEP contributions are reported in the calendar year in which they are made, they are reportable for whichever tax year the employer chooses to include them on their tax return (provided that the contribution is made by the employers tax filing due date including extensions). If they happened to make the 2014 contribution for all other employees by 12/31 of 2014 I can see how from a bookeeping stance your 2014 contribution will make this slighly messy, but that doesn’t change the fact that a 2014 contribution can and must be made to your IRA by the employer. The rules are not different just because everyone has their own individual accounts at different institutions. Its sounds like they have a bookeeping and knowlege issue and which is putting the entire plan in danger.
Permalink Submitted by Darcie Vaughan on Tue, 2015-04-07 00:27
Thank you oh so very much for taking the time to provide such a thoughtful and knowledgeable response. This was what I suspected as well, and I think this misunderstanding about my distribution is just a symptom of the larger problem — the lack of knowledge of how to operate the plan properly.