SEP-IRA contribution for 2022 - custodian insists must be classified for 2023

Submitted by Lisa R Marshall on Mon, 2023-02-13 22:08

I am self employed and have had a SEP-IRA with a large and well-known custodian for 2 years. I want to max out my 2022 SEP-IRA contribution and will do so before April 15, 2023.

However – the custodian rep told me they will NOT record any SEP-IRA contribution made in calendar 2023 as for 2022. I spent 30 minutes on the phone with two different reps and they both told me the same “policy.” I called the IRS, and the rep there told me to refer the custodian to publication 560 and they have have to do this as it is the law. Still NO from the custodian.

The custodian rep admitted that the result will be that I will have an excess 2023 contribution when they report my additional 2022 contribution for 2023 (if I also max out 2023), and that there is nothing they can/will do about this.

I am beside myself. If I don’t max out the 2022 contribution it will push me into a higher bracket. The only thing I can think of is to make the additional contribution for 2022 now, and then not make a 2023 contribution until spring 2024. Which I would then record on my 2023 tax return, even though the custodian will report it for 2024. ???

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Permalink Submitted by Alan - IRA critic on Mon, 2023-02-13 22:33

SEP IRA custodians are required to report to you and the IRS the year IN WHICH your SEP contributions are made. But you report them on your tax returns based on the year the contributions are actually FOR. So you can make a 2022 SEP contribution this year and report it on your 2022 return. It’s up to the IRS to match up your return to the 5498 forms by whatever method they use to do that.
Sole proprietors will not know their SEP contribution limit for 2022 until their tax return is prepared, so typically they make the SEP contribution after the end of the year the contribution is for.
The custodian rep is correct about the 5498 reporting, but is incorrect about the excess contributions. You will not have an excess contribution unless your tax return assigns too much to the tax year.