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Undercontributed to a SEP participant


Guest jorge casasnovas

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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!

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Jorge Casasnovas

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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.

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

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