Prior year failure to contribute to SEP-IRA

[wsp]

My client's plan paid the necessary contributions to the staff, but neglected to make the contributions for an HCE (the client) based on old and outdated information provided to them by their CPA (along with the typical assumption that the market would continually go up). The account is owed well over $100k (after earnings). Error occurred 7 years ago.

Since the error occured a few years back, is my only method of correction through the VCP program? Any other ideas? Already tried to self-correct and the brokerage firm where the IRA is held won't accept the contributions as prior year contributions. Can't make it current year contributions as there is no current year income to support it...would raise a flag with the IRS if there is a current year contribution reported by the IRA institution but no current year deduction.

Any ideas?

[wsp]

One other thing....would this be a deductible contribution? Or has the client lost it's deduction due to time delay?

[Gary Lesser]

VCP, but be sure the attorney that prepare the application is knowlegeable of SEP and IRA law. Also, alternating and sometime even conflicting correction procedures, may require that a choice of correction methods be first compared and then analyzed.

One of the choices may allow the excesses resulting from the failed contributions to remain in the the plan, but there may be a 10 percent charge for it. In most cases, that charge can be circumvented. There is also a cummulative 10 percent penalty for nondeductible contributions to be reckoned with. AT the moment, the employees are subject to a 6 percent cummulative excise tax, but that can be waived under VCP.

I have worked within a few attorneys in that area (if you need a referral).