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Withdrawal of excess contributions


Guest P A Weick
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Guest P A Weick

An overcontribution for tax year 2001 is made to a SEP on April 15, 2002. Taxpayer's return is filed that day also. The mistake is discovered four days later and withdrawal of the excess sum made. Reading the Code literally - that we have until the due date of the return for the taxable year to which the excess contribution relates to make the withdrawal - we seem to have had until April 15, 2002 to make the withdrawal for that excess contribution. After that time the withdrawal is treated as a distribution. However, for Roth elections we have until October 15 to act. Would a similar rule apply here because Section 408(d)(4) allows withdrawals of excess contributions until the due date of the return "including extensions"? Or does that only apply to elections not withdrawals?

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I assume this is an excess nondeductible contribution?? Response based on this assumption

As provided by the instructions to IRS Form 5329, the October 15 deadline (that applies to recharacterizations of a Roth IRA conversion or a contribution) applies to IRA excess contributions. It therefore applies to the SEP excess contribution, given that the SEP excess non-deductible contribution must be recharacterized as a regular IRA contribution (upon the participation receiving notification from the employer)

Note: The employer must amend the employee’s Form w-2 to include the excess amount as compensation.

The 10 % excess deductible contribution will apply if these procedures are not followed.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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