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Excess Contribution to SEP with no Employees


Sabrina1
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Self employed owner funded a SEP for the first time based on "projected" income.  Later discovered he had a self employment loss.  He took back the SEP contribution, less losses incurred while invested (before his tax return due date).  Is there an excise tax 10% on this reportable on 5330?  Also, is the 1099-R reporting only for employees, and since he has none this is a non-issue?  Anything else to worry about?  Can he take the "loss" on his tax return somehow?

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It should have been withdrawn as an ineligible contribution, and coded as such.  So, no tax deduction on the contribution and no tax (or penalty) on the money coming out.  But the IRA custodian will definitely issue a 1099-R, so getting the coding right on that is critical...and maybe not easy to fix if already in the system.

I'm not sure about the loss.  My gut says no.

Ed Snyder

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I tend to agree with Bird. Why would this loss be deductible The contribution was not qualified to begin with.

Even if you could, the general rule for deducting losses in pre-tax IRAs require the distribution of all balances in all traditional, SEP and SIMPLE IRA accounts. Only losses up to the non-deductible basis in all such accounts can be deducted on Schedule A as miscellaneous deductions subject to the 2% floor.

Note: The tax reform removed all miscellaneous deductions subject to the 2% floor. Starting in 2018.

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