Excess Contribution in SEP IRA
Client had a monthly contribution into a SEP IRA in 2023 based on CPAs recommendation. However, found out today that they over contributed by $15,000. Looking over options:
- Re-code some of those monthly contributions to an IRA contribution (over 50, so $8,000).
- Could we recharacterize the remaining contributions to 2024 contributions even if they were contributed in 2023?
Anything else to do?
Thanks!
Permalink Submitted by Alan - IRA critic on Fri, 2024-06-07 14:50
SEP contributions cannot be changed to regular IRA contributions and cannot be recharacterized because SEP contributions are employer contributions and regular IRA contributions are personal contributions.
If client either filed the 2023 return by the due date or filed an extension by that date, the 15,000 can be removed as an excess contribution with gain/loss. Deadline is 10/15 if business is a sole proprietorship, 9/15 otherwise.
Or if client did not max out their 2022 SEP contributions, the earlier 2023 contributions could be assigned back to 2022, but would require an amended 2022 return.
Other alternative is to pay the 10% excise tax on the 15000 on a 2023 Form 5330, and carry over the excess to 2024.
While messy, it may be possible to apply a combination of the above solutions to deal with the entire 15000, but CPA would probably not like to do that.