Simple IRA - How should plan sponsor correcti past years contributions errors and reconcile with participants?

[Guest kime]

This is a multi part question,

First the owner was over contributing on the employer contribution for his own account, how can we withdraw the over contribution from his account? The problem is he no longer is employed with the plan sponsor and has moved his simple ira to a traditional ira with the same mutual fund company.

For the participants who were shorted in past years how do we reconcile their contributions. Should we factor in their investment options returns during the years their contributions are being reconciled for?

[Gary Lesser]

Kime,

Could you explain your facts more clearly. Why isn't the owner an employee any longer? What is the excess, how created? More facts would help.

In general, a SIMPLE IRA excess should be included in boxes 1 (and possibly boxes 3 and 5) of Form W-2. The amount reported in box 1 should not also be reported in box 12. The employer may be subject to a 10% tax unless corrected (reflected on W-2). Employee treated as making a prohibited contribution to SIMPLE IRA (an excess). IMO, not subject to 6% penalty, but taxed twice if not corrected. Correction may have to be completed by due date if amount contributed exceeds IRA limit for year to avoid double taxation. See IRC 408(d)(4) and the correction limit amount which is set forth in IRC 408(d)(5).

Hope this helps.