Made contribution to the wrong IRA

Submitted by Jack Thomas on Tue, 2016-12-27 23:44

Scenario: IRA owner made a contribution to a TIRA when they meant to put it into their SEP. Owner caught it a few days after the fact. Is there a way to fix this without making it a taxable event? Could this be handled internally at the custodian level? Custodian is saying they will issue a 1099 for doing this.

On a related note, if this is handled internally, and money is transferred from the TIRA to the SEP, does this in any count towards the once per year rollover rule if in the near future the IRA owner wants to do a rollover where a check is issued to the owner and they put it back in an IRA within 60 days?



Submitted by Alan - IRA critic on Wed, 2016-12-28 00:38

  • I assume that the TIRA is a different account than the SEP IRA. A contribution cannot be recharacterized from a TIRA to a SEP or vice versa. The incorrect contribution must be removed as a return of contribution and a new SEP IRA contribution made to the SEP IRA. The 1099R for the return of the TIRA contribution (assuming IRA owner is eligible for a TIRA contribution and chooses to retain it) will only show the earnings as taxable, not the actual contribution. The removal must be requested as a specific return of the 2016 TIRA contribution.
  • A transfer from the TIRA to the SEP of the specific contribution is not permitted for the same reason that the contribution cannot be recharacterized. Therefore, there would be no rollover involved. The confusing part is that rollovers can occur between these accounts (indirect or transfers), but NOT for a specific year’s contribution.
  • If the TIRA contribution had been made to the SEP IRA account as a TIRA contribution (this is allowed), it might have been possible to have the custodian re assign it as a SEP contribution if caught soon enough and IRA owner was a sole proprietor, but not if there was two different IRA accounts involved.

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