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How do I correct excess contributions to a SIMPLE IRA?


Felicia
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Arguably by having the employer include them as wages on the form W-2 and by having the employee treat them as excesses (and, in general, remove them with gain by due date of return). [see IRC Sec. 408(d)(4) and (d)(5)] A letter to that effect on employer letterhead by employer would be helpful in having the employee requested correcting distribution coded so that it is not taxable and not subject to the 10% (25% if made within the first two years). The gain, however, may be subject to the 25% penalty if removed (as is required before due date); arguably, the excess amount is not penalized (and is not taxable; as already shown on Form -W-2). Not much authority here, nor is any available that I am aware of. Comments welcome.

[This message has been edited by Gary Lesser (edited 11-15-1999).]

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