Need Info RE: SEP's

[WhiteOleander]

I have a client who came to me several years ago with a Sch C and a SEP. I was not involved when the client started the SEP.

We had to amend her 2009 return. It decreased what she was allowed to contribute to the SEP.

It appears to me that I have to complete Form 5330 to show the nondeductible portion of the original contribution and pay the penalty. The form has a space for the Plan Sponsor and Plan number. The client uses Scottrade to put the contributions in. Scottrade says they do not set the plan up. It is up to the taxpayer to set up the plan.

So, I'm not sure how to proceed. It appears that Form 5305-SEP is not appropriate because she doesn't have any employees. She only contributes for herself. The Client says she never filled anything out from the IRS. She just opened the account at Scottrade. She says it is "self directed".

Scottrade says they won't allow her to move the excess contribution to next year. They will only let her move it to an "employee" SEP.???? She isn't an employee.

I have talked with Scottrade. They couldn't be less helpful.

Does anyone have any experience with this? I would sure appreciate any info.
Thanks.

[Burke]

Has she filed 2010 yet? Contributed to a SEP for 2010 yet? When I got involved in one of these previously, the custodian told me they only report the amount contributed to a SEP in a calendar year, and do not attribute it to one year or another (like IRA's). Probably this is because if you file an extension, you have until 10/15 of the following year to actually make the contribution. So it is up to the TP to control the allowable amount. Did she make the 2009 contribution in 2010? If so, she should have no problem as long as she attributes the excess amt originally taken on the 2009 return to the 2010 year. And then adjusts 2010 contribution accordingly.

[WhiteOleander]

Yes, She has filed the 2010 return and made the max contribution for 2010. I tiold her we will have to move the excess from 2009 to the 2011 contribution. She likes to contribute the max each year even before the return is finished. I told her not put in another dime until we get this straight.

But, my problem is how to fill out the form to show the excess contirbuiton penalty. Form 5330. Also, she never filled out any IRS forms when she established the SEP. Do I need to fill out something now?

[ChEAr$]

The very first thing you have to do is view the original documents establishing the SEP.
YOu say client came to you ... "with a SEP"; meaning?

Usually one opens a (new) Sep plan with a financial institution and they have model plans already approved by IRS. So look first to the originating documents to verify the very existence of a SEP.

[WhiteOleander]

The very first thing you have to do is view the original documents establishing the SEP.
YOu say client came to you ... "with a SEP"; meaning?

Usually one opens a (new) Sep plan with a financial institution and they have model plans already approved by IRS. So look first to the originating documents to verify the very existence of a SEP.

Yes, this is exactly the issue. The client opened the SEP-IRA with Scottrade. She puts the money into it. The rep. at Scottrade told me, they don't do any paper work for SEP-IRA's. It's up to the investor to do that. So, what I meant was, when the client came to me, she had already been contributing to the SEP. I did not help her establish the SEP originally. So, it appears, she just has been contributing to the SEP with no forms filled out.

This is confusing to me. How can Scottrade allow her to open a SEP w/o filling out the papers. She said she initially went to an office to open it. But, I have seen her papers. There doesn't seem to be anything in there.

Can I fill out a form now?

[ChEAr$]

Yes, this is exactly the issue. The client opened the SEP-IRA with Scottrade. She puts the money into it. The rep. at Scottrade told me, they don't do any paper work for SEP-IRA's. It's up to the investor to do that. So, what I meant was, when the client came to me, she had already been contributing to the SEP. I did not help her establish the SEP originally. So, it appears, she just has been contributing to the SEP with no forms filled out.

This is confusing to me. How can Scottrade allow her to open a SEP w/o filling out the papers. She said she initially went to an office to open it. But, I have seen her papers. There doesn't seem to be anything in there.

Can I fill out a form now?

the forms 5330 has nothing to do with establishment of the SEP, only if an excise tax applies.
So somewhere in client's paperwork is THE PLAN, which I hope you've seen already. Other than the required tax forms Scottrade had to provide end of year, there is no other paperwork. That form of course being the 5498 relating to the IRA established by the client relating to her IRA contributions by her "employer".

However, as relates 2009, there is reasonable cause for IRS to waive any penalties for overcontribution given the fact that original preparer was wrong as to net profit. That form ... uh.. 5329? page 2.

[S T]

Set up SEP-IRA

Looks like it might be as simple as 5305-SEP and no filing requirement.
From IRS

Setting Up a SEP
There are three basic steps in setting up a SEP.

You must execute a formal written agreement to provide benefits to all eligible employees.

You must give each eligible employee certain information about the SEP.

A SEP-IRA must be set up by or for each eligible employee.

Many financial institutions will help you set up a SEP.

Formal written agreement. You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. However, see When not to use Form 5305-SEP, below.

If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required. Keep the original form. Do not file it with the IRS. Also, using Form 5305-SEP will usually relieve you from filing annual retirement plan information returns with the IRS and the Department of Labor. See the Form 5305-SEP instructions for details. If you choose not to use Form 5305-SEP, you should seek professional advice in adopting a SEP.

When not to use Form 5305-SEP. You cannot use Form 5305-SEP if any of the following apply.
You currently maintain any other qualified retirement plan other than another SEP.

You have any eligible employees for whom IRAs have not been set up.

You use the services of leased employees, who are not your common-law employees (as described in chapter 1).

You are a member of any of the following unless all eligible employees of all the members of these groups, trades, or businesses participate under the SEP.

An affiliated service group described in section 414(m).

A controlled group of corporations described in section 414(b).

Trades or businesses under common control described in section 414(c).

You do not pay the cost of the SEP contributions.

Here is the link if you need more info http://www.irs.gov/publications/p560...ublink10008820

If Scott Trade won't assist, then I think I would be encouraging my client to move to Vanguard, Fidelity, etc, as their websites say they will assist in setting up and the 5498 forms.

Then as other posters have indicated, you can try to correct the over contribution in 2009? maybe via form 5329


Sandy

[veritas]

I would be

surprised if the client did not have a form 5305 when setting up the account. It is SOP when setting one up with my broker.

[Burke]

Yes, She has filed the 2010 return and made the max contribution for 2010. I tiold her we will have to move the excess from 2009 to the 2011 contribution. She likes to contribute the max each year even before the return is finished. I told her not put in another dime until we get this straight.

You did not mention when she made the 2009 contribution. IF she made it between 1/1/10 and the due date for filing her 2009 tax return including any extensions, then she can attribute any excess amt to 2010. Then the same would apply the following year. IF she made her contribution between 1/1/11 and the due date for filing the 2010 tax return, then she can attribute any excess for last year to 2011. This would avoid any excess contribution penalties, and no penalty form would have to be completed for the IRS, but would involve amending 2009. I agree with you and tell my clients: DO NOT contribute to their SEPP until I can give them the max figure eligible, which entails doing the tax return FIRST.

[WhiteOleander]

I will definately check the dates and verify them. That may help solve this mess.