Deposits to wrong SEP

[bzorc]

A spouse with a small Schedule C has been deducting a SEP contribution on the joint Form 1040 for many years; the deduction ranges between 2,000 and 3,000 each year. The taxpayer informed us today that this contribution has, for the past many years, been made to his instead of to her SEP account.

The taxpayer is a partner in a partnership, and has large amounts of SE income, so the deduction is allowable each year based on the SE income on the 1040. The question becomes what needs to be done to move the contributions from the husband to wife's SEP, and what tax ramifications are there. The taxpayer asked the SEP custodian what to do and they deferred to the accounting firm who does the individual return, who then asked me (I am the TPA of the husband's company's 401(k) plan) for my opinion. This is one I haven't heard before.....

Any replies would be helpful, thanks!

[rcline46]

I would handle it exactly the same way you would handle a deposit into the wrong persons 401(k) account in the plan you handle.

[mphs77]

In my humble opinion,

If you are not performing services for the SEP, you should recommend

that the SEP administrator and/or service provider address any issues

in which the SEP is involved.

[bzorc]

rcline, thank you for your reply, that makes the most sense IMO. mphs, the SEP administrator essentially said "Ask your accountant" when the husband went to them and made the request as you note above.

[Mike Preston]

SEP's, in some ways, are not as forgiving as qualified plans. I haven't read the EPCRS Rev. Proc. with this particular issue in mind for a long time, but as I recall it requires a filing in this circumstance. Could be wrong.

[Lou S.]

I don't work with SEP but have to feel this is not all that uncommon have you tried the IRS SEP fix it giude?

https://www.irs.gov/pub/irs-tege/sep_fixit_guide.pdf

[Sabrina1]

Anyone have additional thoughts on this?  I now have the same situation for a client.

 

It appears the IRS fix it guide applies easily to employees.  But what about the same error for the husband and wife owners?  Fix it guide says calculate the earnings on the wife's portion of the SEP contribution that accidentally went into the husband's IRA, and then remove the wife's contribution plus earnings from husband's IRA and deposit into the wife's IRA?  There is only one SEP, no employees, both spouses work for the business.  What are tax consequences, if any?  Deduction should be ok since total deduction on Schedule C (married filing joint) didn't change.  Essentially 100% of the contribution went into husband IRA, should have been split 50/50 with wife's IRA as well (both under the same SEP).