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Can an excess contribution to a SEP/IRA be rolled into a solo 401k?

Guest Taxlady1040

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Guest Taxlady1040

I have a heckuva mess on my hands and need some help sorting out the solution.

Client was sole prop/no employees in 2012, and opened a SEP/IRA with Vanguard in June 2013 (missed the solo 401k setup deadline)

Contributed a total of $32,909 to the SEP in June 2013 for tax year 2012, of which $17,000 was erroneously included as deferred compensation, and is an excess contribution. This mistake was just discovered this week.

Formed S Corp in early 2013, and opened a solo 401k with Vanguard also in June 2013 for 2013 contributions. No employees.

Salary deferrals for 2013 reported on W-2 as 12DD are $17,500, but only $14,318 has been contributed so far. Remaining contributions to be made by April 15 to bring the total employee contributions to $17,500.

Employer contributions to the 401k for 2013 total $14,530.50. There are additional employer contributions accrued on the books, but have not been made yet.

My questions are:

1. Can I get the plan administrator (Vanguard) to return the 2013 employer contributions to the 401k of $14,530.50 without penalty if done so before the tax filing deadline plus extensions?

2. Can I recharacterize or rollover the SEP/IRA excess employer contribution of $17,000 into the 401k plan without triggering penalty or a taxable event, since the SEP/IRA contribution was made in June 2013?

3. I realize I have to file an amended 2012 tax return for the client, but because she was a sole prop in 2012, there are no amended W-2's to deal with.

Any help or advise is greatly appreciated. I am sweating the penalties I will have to pay if this scenerio isn't feasible.

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  • 1 month later...

Any excess contributed to the SEP-IRA must removed or slowly used up. It can not be recharacterized into anything. Hope this helps.

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