Prior year employer contributions to SEP IRA.

[Guest Randy Ehle]

Employer contributions to SEP IRAs may be made up until the employer's tax filing deadline, plus extensions. However, the IRS states that those contributions be reflected in box 7 of the 5498 for the year in which the contribution is received.

How are different IRA custodians reflecting those on participant statements? Which custodians reflect those as prior year and which reflect as current year (or no year indicated)?

[Gary Lesser]

The 5498 (2000) should reflect SEP contributions made in 2000, and to the extent "designated to the rustee/custodian, as made for the prior year," those mde in 2001. Contributions for 2001 are made on the 2001 Form 5498.

[Guest amfam2]

Gary: as I read your response, I wondered if you could provide your interpretation of how the IRS would want the following transaction reported on Form 5498:

Client is sole proprietor w/SEP & makes 2000 SEP contribution by the due date of the filing of his tax return, plus extensions. We receive contribution 10/3/01.

The 2000 Form 5498 was due 5/31/01, which reported 0.00 in box 8.

We are now filing the 2001 Form 5498. I believe we record the 2000 contribution in box 8 along w/any 2001 SEP contributions received for this year.

Internally there is a debate that what we need to file is an amended 2000 Form 5498. As I peruse the instructions, the IRS says to file corrected Form 5498s "as soon as corrections are made". Does this mean that we should report the 2000 contribution on an amended 2000 Form 5498, or do we include it on the 2001?

What is your interpretation of the instructions?

[wmyer]

My understanding is that the SEP IRA contributions, as well as SIMPLE IRA contributions, should be reported based on the calendar year during which the contributions are received, regardless of which fiscal year they are designated for. That eliminates the problem of filing amended 5498s in the situation you describe, Randy. The instructions I have for the 5498 box 7 say "Show the SEP contributions made in current tax year." ("In" means "during," regardless of the fiscal year for which those contributions are deducted by the employer.)

[Appleby]

amfam2,

No amendment is required to the 5498

Randy Ehle

I find that most employers find the reporting requirements disconcerting, because, if contributions are made in the current year for the previous year, the amounts reported on the IRS Form 5498, will differ from the amount they report on the employer's tax return. The IRS is well aware that this discrepancy will occur, because of the rules they made. It is important to note that the IRS does not require the employer or participant to include copies of the Form 5498 with their income tax return. Therefore, I would recommend that employers maintain records of the contributions and the applicable tax year for which they were made-. These records should be helpful in their reconciliation processes and help them to report the contribution appropriately on the business’ income tax return.

For contributions that are clearly marked ' previous year' some firms will add a 'trailer' to the transaction, to the effect " contribution received current year for previous year". Other firms have modified their clients’ monthly statements to show the contributions in the year for which the client designates. For example, one section for 2000 contributions received in 2001

One section for 2000 contributions received in 2000

and so on…

However the reporting on the 5498 would still show the contributions in the year they were actually received by the custodian.

[Gary Lesser]

In Box 7 (now box 8 for 2002) enter all contributions made for during 2000. Includue those made in 2000 for 1999, but not those made in 2001 for 2000). The trustee does not report on the employer's tax year "for which" the contributions are being made.

Similar rules apply in later years. See 2002 Instructions for Forms 1099R and 5498, page 13 (top right).