Simple IRA & VCP

[B21]

I have a client who is a sole proprietor & sponsors a Simple IRA. She was unaware that the deadline for her to deposit her 2013 deferral contribution was 1/30/14. She thought she had until her 2013 Schedule C income was determined. If she makes the deposit now can she correct under the IRS VCP? Would an IRS Compliance letter allow my client to take a 2013 deduction for her deferral contributions or can the deduction be taken in the year of correction?

[masteff]

You might see if you can fall under SCP, see pages 19-21 here: http://www.irs.gov/pub/irs-tege/simple_fixit_guide.pdf I'd weigh other options before doing a full VCP.

How much comp does she have? Have you looked at an SEP IRA instead?

[B21]

I was thinking of a SEP for 2013 as an alternative but wouldn't the Simple plan have to had been terminated prior to 1/1/13?

[masteff]

http://www.irs.gov/pub/irs-tege/forum10_simple_ira.pdf

I'm leaning towards SCP correction of the SIMPLE, but I can't make that determination for you. The correction would be to make the deposit now plus corrective earnings since Jan 30th.

[Flyboyjohn]

Can anyone point me to a cite for the proposition that the elective deferral of a self-employed individual has to be made by January 30th?

[ETA Consulting LLC]

IRC Section 408(p)(5)(A). It's a SIMPLE IRA provision that does not consider the possibility that a "sole prop" or "partner" may not know their income for the year in which to base a deferral.

Good Luck!