Excessive SEP IRA contribution rolled to 401k

Forum|Forum|2 years ago
January 14, 2024
7 replies
68 views

Due to whatever reason I’ve not filed my 2022 tax yet.

But in 2023 I contributed to SEP IRA and then immediately rolled the money to a 401k.

Now when preparing 2022 tax I found that my contribution was more than allowed.

How do I solve this problem quickly?
I want to withdraw but it’s so late and fund already rolled over (no fund in Sep account)

since I don't have bussiness income for 2023, I am not eligible for 2023 contribution, the whole amount is treated as 2022 contribution.

how can I solve this problem?

i can pay a fine. Just want to get over it.

or can I simply ignore it? I contributed 16k, max I should contributed is 14k and change based on TT calculation.

dmertz

Level 15

Are you eligible to contribute to a SEP IRA for 2023? If so, because you made the contribution in 2023 a portion of it can be considered to be a contribution for 2023. You as the employer are the one who tracks the year for which the contribution was made. SEP-IRA custodians and Forms 5498 only track the year in which the contribution was made.

chunhuachAuthor

Level 2

no my business didn't make any money in 2023 so not eligible to make SEP IRA contribution for 2023.

This biz made 100k in 2022 but zero in 2023.

dmertz

Level 15

I'm a bit confused. $100,000 of net profit from self-employment is plenty to allow a $16,000 SEP contribution. $87,000 of net profit would be enough.

Assuming that you did make a $2,000 excess SEP contribution in 2023 and no longer have any money in the SEP-IRA, I think I would consider that $2,000 to have been distributed as a return of contribution (with no adjustment for earnings needed since this happened immediately after the contribution), $14,000 properly rolled over to the 401(k) and a $2,000 excess contribution to the 401(k) that still needs to be corrected. On your 2022 tax return you would show only a $14,000 SEP contribution. In 2023 TurboTax you might enter a substitute code-G 2023 Form 1099-R with $14,000 in box 1 instead of $16,000, then enter a substitute code 8 2023 Form 1099-R with $2,000 in box 1 and zero in box 2a. Both of these Forms 1099-R must have the IRA/SEP/SIMPLE box marked. The explanation for each of these would indicating that the $16,000 distribution included $2,000 of excess contribution that had no adjustment for earnings because the $16,000 distribution occurred immediately after the excess contribution was made. However, entering substitute Forms 1099-R will likely force you to print and mail your tax return. An alternative would be to report the code-G 2023 Form 1099-R as received since the result on Form 1040 would be the same ($16,000 on line 4a, $0 on line 4b), then just provide explanation to the IRS if they ever question the transaction.

The corrective distribution for the excess $2,000 401(k) contribution needs to happen by April 15, 2024.