Looking for guidance on a specific situation. We are a small employer with a SIMPLE IRA plan. Due to a payroll data entry error on our end, the wrong employee elective deferral amount was entered in our payroll system (Gusto) for one employee over 3 pay periods within the same quarter. The excess is well under the annual IRS contribution limit.
We contacted our CPA who also serves as our SIMPLE IRA custodian. They reached out to their back-end clearing firm (Apex Clearing) who is saying the funds cannot be removed and there is no corrective process available through their platform.
Our CPA advised against an early withdrawal with the employer absorbing the 10% penalty. The current proposed solution is issuing the employee a reimbursement check for the full amount, with the equivalent amount remaining in the SIMPLE IRA. The CPA is treating this essentially as a loan — the employee receives the check now and the equivalent amount is recouped via their ongoing $79 biweekly paycheck deduction going forward, rather than that amount going to their SIMPLE IRA contributions.
My questions:
Is there an IRS correction process (EPCRS/SCP) that applies specifically to excess employee elective deferrals caused by employer data entry error?
Is Apex Clearing's position that funds cannot be removed accurate?
Is the reimbursement check/loan structure compliant and is there a cleaner solution?
Thank you in advance.
