Undercontributed to a SEP participant

[Guest jorge casasnovas]

A SEP participant was under-contributed 3 years ago (1996). Can anyone please explain how to correct the situation?

Thanks so much!

------------------

Jorge Casasnovas

[Gary Lesser]

The error can not be corrected. Because there was a failure to provide a uniform allocation (although integration is permitted), the __other__ participant's have recieved "excess contribution" (possibly subject to cummulative 6% IRA contribution penalties) and the e/er has made a nondeductible contribution (subject to a one-time 10% penalty). The good news, the gain may remain in the account.

[Gary Lesser]

A detailed description of the above described correction method is provided in Proposed (since 1981) Income Tax Regulations Section 1.408-7(d)(5).