Mistaken deposit
In March of 2018 my client gave me a check for a 2017 contribution. We were under the impression the funds were to be deposited into his SEP-IRA. Just recently his accountant advised him the funds should have been deposited into his IRA. The amount was less than $6000. We have withdrawn the funds from the SEP on the advice of the accountant. Is there any chance of relief for my client for our mistake or will the IRS assess a penalty and tax on those funds?
Thanks very much.
Sam
Permalink Submitted by Alan - IRA critic on Fri, 2019-03-29 19:20
Before compounding an error, the client should be sure that this contribution was considered a SEP contribution by the custodian, because it is possible to make a TIRA contribution to a SEP IRA as well as a SEP contribution. If it was treated as a SEP contribution as expected, it might create an excess SEP contribution for 2017, or it may be treated as a 2018 SEP contribution. His 2017 return will probably need to be amended, since it would show either a deductible TIRA contribution or a non deductible TIRA contribution on FOrm 8606. As for the distribution, since it was done after the deadline it not treated as an excess contribution removal with earnings, and can be rolled over to the TIRA within 60 days. That will eliminate tax and penalty on the distribution, but there might be an excise tax to pay for an excess SEP contribution for 2017. The accountant will have to work that out, and reporting it as a 2018 SEP contribution if possible might eliminate the excise tax.