Excess SEP Contributions

Submitted by Jessica DeBold on Tue, 2024-02-13 23:12

A new client came in and our team discovered that their accountant had been reporting day trading income on Sch C ( subject to SE tax) that should not have been reported that way. Since he was reporting a net Sch C profit he has also been contributing to a SEP IRA. His returns have now been corrected and the day trading income is being correctly reported on Sch D and he was NOT eligible to make the prior years of SEP contributions. We now need to remove those contributions. We believe the proper way to do so is to follow the instructions on Form 5330 where he will be subject to a10% excise tax/ year. Does anyone know of any other alternatives here to unwind those SEP contributions?



Submitted by Alan - IRA critic on Wed, 2024-02-14 00:04

No, not unless they can be carried forward and applied to later years with SE income. Are you sure that client’s day trading income was insufficient to be classified as a trader rather than an investor?

Submitted by Jessica DeBold on Wed, 2024-02-14 00:16

My CPA colleague researched and provided the resources to the new client’s accountant and they both agreed that he should not have been reporting income on Sch C, so we are confident that it was incorrectly reported.  I read another post on here on this subject where spiritrider commented on a similar situation and in my reading it sounded as if spiritrider thought the person would have to correct as the employer on 5330 subject to 10% and again as the employee on 5329 subject to the 6% excise.  I didn’t see anything in Pub 560 (or any other resources) to support the fact that he would have to correct as BOTH the employee and the employer.  Can you please confirm your thoughts that it is just the form 5330 and the 10% excise? https://www.irahelp.com/forum-post/61367-amended-return-and-sep-contribution 

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