I had an excess contribution to my SEP-IRA in 2018 ($601). It seems there are 2 options:
1. Have the excess removed (fees and penalties involved)
2. Under-contribute by the same amount in 2019 and pay the 6% penalty
How do I go about either of these processes in TurboTax Self-Employed Online? At one point in the IRA contributions process, it asked me about IRA overpayments, but never followed up on that.
Option 1 sounds like a lot of work and headaches to save $36. I’d prefer to just go with Option 2, pay the penalty and be done with it.
Option 1, I was told, will likely have to happen on my 2021 taxes, and requires a “tax professional” to make sure all the paperwork is filed once Vanguard moves the money to the proper locations. And I’ll likely pay a 10% penalty for the removal of the excess funds from the SEP-IRA. Not to mention an additional year of the IRS 6% penalty.
Hence my desire to just pay the 6% penalty this year, and be done with it.
Is there any downside to Option 2 (Vanguard support referred to it as “absorbing” the excess, but not sure if that is the technical term for it)?
Am I incorrect in any of my understanding about the options available, or the process, or the fees involved?
And how exactly would I go about Option 2 within TurboTax?
