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Does mistake on one SEP account disqualify others?

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The Company sponsored a SEP with 2 participants. It turns out 1 participant provided no services to the Company and was ineligible to receive SEP contributions. Does that mean the other participant's SEP account could be disqualified?

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No. It means that the ER contributions for the ineligible employee is treated as having received compensation and then made a voluntary IRA contribution. If the amount isn't within the personal IRA limits for that employee it is treated as any IRA contribution in excess of the limits.

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