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Excess employer match into SIMPLE IRA


Guest Diane DuFresne
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Guest Diane DuFresne

Sole proprietor funded SIMPLE IRA fully (11,500 EE and 11,500 er match) for 2011 in September 2011. Net self employment income supports an ER matching contribution of only $3,765....$7,735 excess er matching contribution. Looks like under EPCRS the excess, plus earnings, can be removed without penalty under self correction. Does this sound correct?

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Yes. My understanding is that it is returned "to the employer" and the sole prop simply doesn't get a deduction - no deduction/no tax on the return.

From http://www.irs.gov/retirement/sponsor/arti...=157615,00.html

Over contributions or excess amounts are treated differently based on how they occurred:

1) If they are due to elective deferrals, the excess amounts, adjusted for earnings, may be distributed to the affected participant, reported on Form 1099-R and are includible in gross income in the year of distribution. The affected participants must be notified that the corrective distribution is not eligible for favorable tax treatment (i.e., tax-free rollover).

2) If they are due to employer contributions, the excess amount, adjusted for earnings, may be distributed to the plan sponsor. The amount distributed is not includible in the gross income of the affected participant and the plan sponsor is not entitled to a deduction for the excess amount. The distribution is reported on Form 1099-R issued to the participant indicating the taxable amount as zero.

Ed Snyder

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