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Old SEP Excess Contributions

Guest Patrick Foley

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Guest Patrick Foley

X opened and funded a SEP for himself in 1997, not understanding that employees had to be covered. Rather than retroactively covering them, he wishes to remove the contribution he made for himself.

It appears to me from Code section 408(d) that, once his 1997 1040 is amended to eliminate the SEP deduction, he can remove the excess without paying tax on it. It does not appear that income need be withdrawn.

Is this analysis correct? And will the 6% excess contribution excise tax of section 4973 apply rather than the 10% excise tax of section 4972?

Thanks for your help.

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