SEPT IRA Excess Contribution and Amending Return

[melaniezhangpt]

Hello,

For 2018 taxes, Turbo tax calculated my maximal SEP IRA contribution as $549.00. I filed my 1040 with a contribution amount of $549.00 to SEP IRA.  However, I made a mistake and requested Vanguard to contribute $686.00 towards my 2018 SEP IRA account.  Now I have a discrepancy of  $137 between what was filed and what was actually contributed to Vanguard.  Vanguard can remove the excess contribution plus the interest before Oct of 2019 deadline, but they said that I need to file an amendment and they will issue a 1099-R.  I have an concern with amending my taxes because if I amend taxes for 2018 with the same SEP IRA contribution of $549.00 (correct maximal contribution) then it might be look as no changes were made to the return.  Should I amend the 2018 tax to reflect a lesser contribution amount than $549.00 and have Vanguard remove the excess to match? Also, the 1099-R issue from Vanguard would mean that I would to pay taxes on the excess of $137 when I never received any deduction due to reported a contribution of $549 on 1040.

[Critter]

You have nothing to amend since you filed correctly to begin with ... you may have to report the earnings on the distribution on the 2019 return since that is the year the excess money was removed. 

[dmertz]

If the 2019 Form 1099-R includes code P in box 7, the earnings shown in box 2a of that form are reportable on the 2018 tax return and the 2018 tax return will need to be amended to include the 2019 Form 1099-R.  If the 2019 Form 1099-R instead includes code 8 in box 7, the earnings will be reportable on the 2019 tax return.

Since there is no immediate need to amend, I would wait until you receive the 2019 Form 1099-R near the end of January 2020 and then amend 2018 if the form includes code P in box 7.

[melaniezhangpt]

Hello, thanks for the response!  I spoke with Vanguard this afternoon and the representative pointed out that I had contributed to SEP (employee contribution) and not SEP (employer contribution) for year 2018 in the amount of $686.00.  (I am a sole-proprietor with 1099 income).  This was reflected on form 5498 from Vanguard.  Due to my incorrect submission, Vanguard had listed my SEP employee contribution in box 1 under IRA contribution and not in box 8 as SEP contributions. Since, my AGI is above the limits of IRA eligibility, the representative had suggested to excess the SEP employee contribution listed in box 1 of 5498 for the amount of $686.00 and re-contribute the correct amount of $549 as SEP employer.  The deadline for SEP employer contribution is Oct 15, 2019.  Does that sound like the right advice? As per your response, I believe that if I rectify things in this manner then I do not need to amend the 2018 tax since the correct amount of $549 will be reconciled. I would just need to wait for the 1099 R from Vanguard and see if the distribution has to be filed in tax year 2018.

[dmertz]

The deadline for a SEP contribution based on 2018 self-employment earnings is October 15, 2019 only if you requested a filing extension.  If you did not request a filing extension, the deadline to make a SEP contribution was April 15, 2019 and it's possible that your $549 SEP contribution is an excess contribution unless you treat it as a SEP contribution for 2019, assuming that you have self-employment net earnings for 2019 to support the SEP contribution for 2019.

Since you had sufficient compensation to support the regular personal traditional IRA contribution, the regular personal contribution that you made was not an excess contribution and there was no requirement to have that contribution returned.  If you did not participate in any retirement plan of some other employer for 2018, your personal contribution was deductible (long as you made no actual SEP contributions).  If you did participate in another employer's plan, your AGI made your your regular personal traditional IRA contribution nondeductible but not an excess contribution.

Regardless, yes, you'll need to report the 2019 Form 1099-R based on the code in box 7 as I described earlier.