single participant plan mistakenly deposited contributions to the wron

[Stevo-PDX]

We have a client of a single-participant plan who mistakenly made his 2000 money purchase and profit sharing contributions to his taxable brokerage account instead of his retirement account. His checks were made out for the proper amount, the contribution type was written on the memo field and the checks deposited before April 15th 2001. He just sent them to the wrong account. Has anybody seen some relief from the IRS on this type of situation and what types of penalties and correction procedures would he be looking at? Presumably this would not fall under DOL and ERISA jurisdiction.

Thanks

[Guest LWilson]

It sounds like a situation that is "self correctable," more of an "oops" than a breach. Sometimes you run into situations that call for corrective measures, and you just have to tease through the process the best you can. This sounds like one of those situations.

Number One: Move the contribution ASAP! You can work through the other implications, like earnings and personal taxes, later . . .

After the money is moved (and it has been already, I hope)DOCUMENT EVERYTHING you do. I would suggest collaborating with his accountant on this.

You're going to need to determine how much that money earned while it was in the wrong account, and you're going to need to determine how much that money would have earned had it been deposited correctly.

Were there any implications on his personal tax return as a result of any earnings that were attached to this deposit?

His retirement plan account needs to be made "whole." That means, he's got to put in whatever would have been there had the money been deposited appropriately. So, if the retirement plan experienced gains, and the personal account experienced losses . . . uh oh.

I doubt you're going to find any case studies on this one . . . but you may even want to consider disguising your voice, and calling the IRS . . .