SEP Contributions in Error

[Gilligan]

From 2006 - 2014 I was an indepent outside sales rep that conducted business as an S-Corp. During this time period I have made auto draft monthly contributions to a SEP Account. In 2013 I took a job with a company, but kept my S-Corp in business because I was still owed quite a bit of commissions from the company tha I represented. During 2014 I was still owed over $20,000 so I continued to keep it open, but did not pay a payroll to myself and therefore do not have a W-2 for 2014. However, not realizing this was a problem, I continued to pay into my SEP account ($3,600 for 2014). The company that handles my SEP Account has already sent in my Form 5498 to the IRS. I filed an tax extension for 2014 and have not yet filed. Now my accountant is working on my taxes and has told me of the problem. How can this be fixed? Since I have not filed my taxes yet, can my investment firm not just send in a form 5498 with a correction and pay me back the amount invested? Then the earnings would be considered ordinary income and taxed just like the original investment? Wouldn't this also exclude me from having to pay the 10% penalty for pulling the money out of the SEP? Again remember, I have not filed my 2014 income taxes yet...

[Lou S.]

Since a SEP is an IRA, I would look at the rules for removing excess contributions from an IRA. If you are on extension I believe you have until your extended due date to make the corrections and avoid the 6% excise tax.

You may also be able to treat some or all of it as non-deductible contribution to the IRA creating a basis.

Though if the contributions came from your S-corp there may be other problems beyond my expertise since I don't work much with SEPs or corporate taxation.

The IRA custodian can't just "resind the 5498".