Cheryl Merritt

THANK YOU BOTH - Appleby and Bird. This advice is exactly what I needed and was hoping someone could provide. I know what to do now from my end. Thanks again.

APPLEBY: No one knew anything about this plan but the shareholder. The employees were not told and therefore had no opportunity to participate in either tax year. The financial planner didn't even know he had employees. The employer had a 3% match. There was no handling of the 14,000 on the tax return. There was no payroll withholding for the SIMPLE. He simply gave his financial planner 14,000 of personal money and this financial planner gave it to his guy handling the SIMPLE IRA. The SIMPLE was filed with the IRS because the shareholder got Form 5498 saying he had deposited 14,000 into his SIMPLE IRA for 2022. The SIMPLE only came to light when the shareholder asked how much he could contribute in 2023 because his financial planner wanted to know. PETER GULIA It was a SIMPLE because the IRS received forms saying 14,000 had been deposited into the SIMPLE on behalf of the shareholder. I just don't know what to do when the money deposited was after tax money belonging to the shareholder. Nothing went through payroll for either year. The question now is how to fix this. If he takes the money out it will be a taxable distribution on the 14,000 which has already been taxed. There will be plan penalties, early withdrawal penalties and the plan will need to be closed out. I think it's flawed and was never a real SIMPLE regardless of the fact after tax money was deposited into it. Still, I have no idea what exactly to do. Thanks.

Hello. I have a situation where an S Corporation sole shareholder set up a SIMPLE IRA plan for himself and his three employees in April, 2022 using his financial broker. In 2022, he deposited 14,000 for himself into this plan with money from his savings account. There was no payroll withholding for this plan for the owner or his employees. He never notified payroll he even had this plan. He was funding this plan through his financial advisor, who I recently learned turned over his signed Form 5304 to someone else. Fast forward to December 2023, when his payroll service was asked how much he could contribute for 2023? Since there was no knowledge of this plan's existence, the answer was "What plan?". My question is what happens now? I have an owner with 14,000 in a SIMPLE IRA that got there without payroll, nothing for any employees, and no matching. If the money is removed it will come on a 1099-R as taxable, plus it will be less than two years since it was deposited which is one penalty, early withdrawal which is another penalty, and then the penalty for the whole plan being administered incorrectly. Since this 14,00 was already taxed, how do we fix this where the money isn't taxed all over again? I have asked several professionals about this but I can't get any answer. I just hear this doesn't happen. Thank you in advance for any insight.