Excess Employer Contributions to SIMPLE IRA

[MarZDoates]

Employer has been funding their SIMPLE IRA match throughout the year. However, they have contributed more than 3% of pay for some of the participants.

How can this be corrected? I am not having much luck finding anything that talks about what happens when the employer contributes too much in the SIMPLE IRA.

Any input is greatly appreciated. Thanks.

[mbozek]

The reason you havent found anything is because it is not supposed to happen. Presumably the excess is subject to some excess contributions tax. The only thing for the er to do is ask the custodian to remove the excess contributions from the employee's IRA but the custodian may refuse unless the employee consents because the IRA is the sole property of the employee.

[Appleby]

Actually, as provided under the IRS Restructuring and Reform Act of 1998 (IRRA), return of excess contributions to SIMPLE Plans are treated in the same manner as excess contributions to SEP IRAs.

For this participant example, the following should occur

-The employer would treat the excess contribution as wages and include the amount on the employee’s W-2,

-The employer would notify the employees of the excess amount

-The employees would in turn notify the SIMPLE IRA custodian and completed the required paperwork to have the amount removed as a return of excess contribution.

The only difference (from the way it is handled from a SEP excess) is that the excess amount would not be recharacterized as an IRA participant contribution, given that IRA participant contributions cannot be made to SIMPLE IRAs.