Error in SEP Contribution

Submitted by Andrew Rogers on Mon, 2016-03-28 21:19

We have a client that had requested a contribution for their 2014 tax year in early 2015. Apparently the advisor had not completed the contribution as requested. Is there anything that can be done for the client to get credit for that amount as if it were contributed for the 2014 tax year?



Submitted by Alan - IRA critic on Mon, 2016-03-28 22:24

No, there is no retroactive solution to this error. Sounds like the 2014 tax return will also have to be amended to eliminate any SEP deduction. Perhaps the advisor should be held responsible for the combined consequences if the error was exclusively on the advisor’s part. If only partially, the client will likely not recover anything.

Submitted by Andrew Rogers on Tue, 2016-03-29 19:55

So looking through the transactions, we’ve discovered this is what happened in timeline: 

  • Client instructs advisor to do a contribution in March 2015 for 2014 tax year
  • Contribution is done in March from a checking account, but it was supposed to come from a joint brokerage account.
  • Advisor requests correct and custodian corrects it through doing an exempt distribution for the 2015 tax year.  Money is deposited back into checking account.
  • *** So at this point, there has been a 2014 contribution correctly, but the custodian attempted to “correct” it comeing from the wrong location by offsetting the transaction with a 2015 distribution.
  • Client get s 1099 for the distribution for 2015 and is needing to pay taxes on it.

So it looks like the distribution was done through 2 transactions:

  1. 2014 contribution (done as requested but from wrong account)
  2. 2015 exempt distribution

 So the client did request the contribution (although from a different source of funds), but now we are faced with a distribution that wasn’t needed for 2015.   So essentially, are we able to leave the contribution for 2014 and correct the 2015 distribution?  It shouldn’t have been corrected that way.  The best way would’ve been to fund the customer back out of the original intended source, but hindsight is 20/20.  Additionally, is there a way to actually correct the distribution so that we can offset it (redeposit the actual funds) without counting toward their limit for their regular 2015 SEP contributions?I know it’s extremely confusing.  I appologize.  It’s defeinitely a once-in-a-career type of situation!

Submitted by Alan - IRA critic on Tue, 2016-03-29 22:32

What is the Box 7 coding on the 1099R received for the corrective distribution?  You are correct about how this problem should have been resolved with one account reimbursing the other.

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