New DB - Already funded SEP for 07

[Guest erepper]

I have a business owner (no employees) who would like to set up a DB plan for 2007. However, he has already funded his SEP (above 6% of comp i might add). Is there any way this contribution can be "re-classified" as a DB contribution? My thinking is that he can set up a 414(k) account, roll the SEP assets into the 414(k) account and the $45,000 that was contributed into the SEP would then be a DB contribution.

[JAY21]

To me this situation has always come down to what the investment company is willing to do. If they're willing to re-classify the contribution as a DB contribution (vs. a distribution from a SEP and new contribution to a DB account) then it could work. I'm not familiar in the 414k approach you are talking about so can't comment on that strategy.

[Effen]

I would probably say they are SOL until 2008, but then I'm a bit conservative on this kind of thing.

[Mike Preston]

I wouldn't go along with it even if the investment company would. It was a contribution to a SEP, which means it now resides in an IRA. Search BenefitsLink for how to handle making the contribution essentially go away. Basically, I think the procedure is to treat it as compensation and a voluntary contribution to an IRA. To the extent it exceeds the otherwise applicable limits, it must be withdrawn, with interest by 4/1 of the calendar year following deposit.

[jevd]

I wouldn't go along with it even if the investment company would. It was a contribution to a SEP, which means it now resides in an IRA. Search BenefitsLink for how to handle making the contribution essentially go away. Basically, I think the procedure is to treat it as compensation and a voluntary contribution to an IRA. To the extent it exceeds the otherwise applicable limits, it must be withdrawn, with interest by 4/1 of the calendar year following deposit.

The due date to remove an excess contribution from an IRA without penalty is the taxpayers filing date including extensions. No extension needed. See instructions for form 5329.