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Qualified plan established during year when SIMPLE IRA contributions a


Guest FredReilly
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Guest FredReilly

What is the tax effect of establishing a qulalified plan when contributions have already been made during the year when SIMPLE contributions have been made?

Can they be disgorged similar to excess IRA contributions? Early Distributions penalty?

or do you just W-2 them?

I guess the question is what the effect of SIMPLE disqualification?

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As my guess - they are IRAs and I think that a disqualified SIMPLE is the same thing as an impermissible IRA and you would correct according to those rules - reversal allowed until 4/15 of the following year. But, you're suggestion to W-2 the deductions would effectively do the same thing as long as the accounts are timely closed and the earnings are currently reported.

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  • 2 weeks later...

The excess SIMPLE IRA contributions should be treated as wages for all purposes by the employer (shown on form W-2, along with the deferrals into the SIMPLE). The employee could remove the excess by due date of his or her federal income tax return "as an excess." Many trustees are hesitate to do this and want to treat the amount as subject to the 25% penalty during the first 2 years. You'll have to argue that the Code for premature distributions state that there are exceptions and that the "return of an excess" is obviouly one of them. The gain (also to be removed before the due date) is taxable and may be subject to a 25% penalty.

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