Too much contribution made in 2013 to 1 participant PS Plan

[RayJJohnsonJr]

In Plan Year 2013 the owner contributed the max, $51,000, twice, and we just caught it.

What is the best course of action?

Thank you.

[Lou S.]

I'd check dates and amounts of contributions every year since 2013 as well and his tax returns from 2013 on to see if anything needs to be amended.

If you are very lucky the contribution pattern will be OK and he hasn't over deducted contributions this will be largely dependent on the timing of the contributions.

If you aren't luck you are going to have some non-deductible contributions and excise taxes and possibly a VCP filing in your future as well as some amended tax returns if he deducted too much.

[RayJJohnsonJr]

Fortunately, I have verified that there have been no excess tax deductions taken on any tax returns. I can make the excess contribution appear to have occurred in 2015.

[david rigby]

I can make the excess contribution appear to have occurred in 2015.

I don't know what this means. Just in case, remember that fraud is a bad thing.

[Lou S.]

I can make the excess contribution appear to have occurred in 2015.

I don't know what this means. Just in case, remember that fraud is a bad thing.

I think what he means is that based on the timing of contributions, 2015 is the first year where he has a "true" excess contribution.

As an example assume the following fact pattern for simplicity -

2013 - $51,000 K deposited in 2013 for 2013

2014 - $51,000 K deposit as mistake for 2013 (but not deducted on 2013 return) - simply call this his 2014 contribution

2015 - $51,000 K deposited for what he though was 2014 + $51,000K deposited for 2015.

That would make 2015 the first year with a problem for excise tax which I think you could then deduct in 2016 amounts may vary slightly but you get the idea.

[RayJJohnsonJr]

Thank you, you explained that perfectly. The second 2013 contribution was made in early 2014, se we can count that as 2014, the 2014 contribution was made in early 2015, we count that as 2015. What happened next is, for 2015, he put some money in in Aug. 15, some money in Oct. 15, and the rest in March 16.

[RayJJohnsonJr]

So, assuming the above, that is, he maxed out plan year 2015 in early 2015, then added more contributions in Aug. 2015, Oct. 2015, and March 2016. What can be done to rectify this or what must be done?

[Belgarath]

The August and October contributions made in 2015 will be non-deductible contributions, and he'll have to pay a 10% excise tax. He can then use them toward his 2016 contribution. Assuming that those, plus the March 2016 contribution, don't exceed the maximum, then he's all set. But tell him to stop funding in advance!

If the total exceeds the 2016 limitation, then he has the same problem for 2016.