topic Re: SEP IRA contribution error in Retirement tax questions

SEP IRA contribution error

JNtax — Thu, 08 Apr 2021 15:55:42 GMT

Apologies in advance this is so long. For my SEP IRA (self-employed, no employees) contribution for tax year 2019, I miscalculated my maximum contribution and transferred almost $200 more than the maximum amount into my SEP IRA account in July 2020 (before the revised 2019 tax filing due date). I caught the error before submitting my 2019 tax return, so my tax return contains the correct maximum contribution amount.

I understand that a process exists to correct excess SEP IRA contributions, but I don't know if what I did actually is an excess contribution. My brokerage firm does not capture information about the tax year for which a SEP IRA contribution is intended (like it does for Roth IRAs), and the allowable period for making SEP IRA contributions for consecutive tax years overlaps, so it seems like I might be able to simply reduce the amount I add to my SEP IRA before the 2020 tax filing deadline, so I don't cumulatively contribute more than the maximum based on 2019 and 2020 SE net income, and avoid all the complicated excess/over contribution corrective actions. In other words, if the amount I added to my SEP IRA account during CY 2020 was $18,200, and the maximum contribution for 2019 and 2020 were $18,000 and $17,000 respectively, could I just fund the account with $16,800 before the tax year 2020 deadline (now May 2021) to get to a total of $35K (combined maximum)? And since I reported $18K on my tax return as my contribution for 2019, should I report a $17K (v $16.8K) as the SEP IRA contribution on my 2020 taxes? Thanks for any feedback!

Re: SEP IRA contribution error

dmertz — Thu, 08 Apr 2021 16:17:12 GMT

Your numbers are correct.

You can treat the almost $200 as part of your 2020 SEP contribution because it's your responsibility to allocate the contributions made between January 1 and the due date of the previous year's tax return to a particular year. Just make sure that your personal tax records identify that the almost $200 that was contributed in July 2020 was for 2020 and that only the other roughly $18,000 was for 2019.

Re: SEP IRA contribution error

JNtax — Thu, 08 Apr 2021 16:35:06 GMT

Thanks, dmertz. I could not find any official way (i.e., an IRS or brokerage form) to allocate the contributions to tax years 2019 v 2020. My brokerage firm has a form for removal of excess contributions, but that does not seem to apply given our shared understanding that I can allocate part of my July 2020 funding to tax year 2019 and part to tax year 2020. For "personal tax records", I only have my own spreadsheets and word documents that I use to compile information and identify/resolve questions and keep notes for myself. Is that sufficient, or is there a more formal/official way to do this allocation?

Re: SEP IRA contribution error

dmertz — Thu, 08 Apr 2021 20:45:03 GMT

There is no official form. You just keep sufficient business records to show the amounts that your business (you as self-employed) contributed as SEP contributions for each year.

Re: SEP IRA contribution error

mmcc4240 — Thu, 13 May 2021 19:55:26 GMT

I have similar error. Contributed $2600 to SEP-IRA (prior to filing CY2019 tax return in June 2020). I am self employed/solo contractor. But ended up not earning enough self-employment income to claim this contribution in CY2020.

The custodian's Form 5498 labels the $2600 all contributed "2020 FOR 2020." They will not change this designation. Since the $2600 was all contributed PRIOR to CY2019 tax deadline (7/15/20), can still claim it as a CY2019 contribution despite the custodian "2020 in 2020" designation? If so, OK to file 1040-X for CY2019 to designate/claim the $2600 contribution in 2020 as a 2019 deposit?

Or is it cleaner to just seek refund as "excess contribution" from custodian?

thanks!

Re: SEP IRA contribution error

apple-Sweet-z — Thu, 09 Mar 2023 13:37:00 GMT

These are very good questions, as I have the same concern—— the first time I do SEP, and I am making errors. (For tax year 2022)
hope we can get some excerpt help/ clarification . Much appreciated!

Re: SEP IRA contribution error

HopeS — Thu, 09 Mar 2023 16:16:16 GMT

Assuming you are having issues entering your SEP contribution, please see the steps and guidance below:

Once your self-employment income is entered:

Sign in to your TurboTax account
Open your return
Select Search and enter SEP IRA contributions (use this exact phrase, including the s on contributions)
Select the Jump to link in the search results
In the Self-Employed Retirement Plans screen, select No to the question, Did you contribute to an Individual or Roth 401(k) plan?
- If you get the message Self-Employed Retirement Plans are only for self-employed individuals (i.e., those filing Schedules, C, F, or K-1), this means that you haven't entered your self-employed income yet. Once you've entered your income, you can come back to these instructions
In the Keogh, SEP, and SIMPLE Contributions screen, select Yes
Answer any additional questions until you get to the Your Contributions screen, where you’ll be able to input your SEP IRA contributions

How to Enter SEP IRA contributions

@apple-Sweet-z

Re: SEP IRA contribution error

apple-Sweet-z — Thu, 09 Mar 2023 16:58:55 GMT

Thank you very much for the reply. @HopeS
I should have explained the concern more clearly:

I work as part time solo contractor, in addition to regular W2 job.

this is the first time I fund SEP for myself, say $2000, on 3/1/23 for yr 2022. and then found I had to make some adjustments to my deductions, which resulted less taxable income and less SEP (say $1900). I have not filed my tax return for 2022 yet.
from the above q&a, it seems that I do NOT have to withdraw (or refund) this “excess SEP-IRA funds” for now, and designate the $100 as SEP for 2023, am I correct?

The above post mentioned Form 5498, does this form determine which year the funds belong to? @mmcc4240

another related question: since I funded my own SEP as employer and only employee, will I receive form 5498 from Fidelity, or should I file this form , and when should I do so?

Re: SEP IRA contribution error

AliciaP1 — Thu, 09 Mar 2023 18:12:35 GMT

Yes, if you use a fund manager at Fidelity you should notify that person so you are both on the same page about the year the contribution is applied to. You do not receive form 5498, it goes to the IRS and Fidelity is responsible for filing the form. You will only get a 1099-R from Fidelity when you take a distribution from the IRA.

@apple-Sweet-z

Re: SEP IRA contribution error

dmertz — Fri, 10 Mar 2023 02:02:33 GMT

SEP-IRA custodians, including Fidelity, do not track the year for which a SEP contribution is made. They only track the year in which the contribution is made. It's the employer's responsibility to track the year for which the contribution is made.

And you certainly will receive a Form 5498 reporting SEP contributions made within a particular year (but not the year for which the contribution was made).