Simple IRA Schedule C Error

[Bjorn]

Fact Pattern:
Lady is self employed consultant and put $1000.00 too much into her 2006 Simple IRA. The issue was caught and the money plus interest was pulled out in 2006.

Problem:
American Funds issues a 1099R with $1064.01 in box 1 and 2a. Is this proper?

What is the proper reporting?

Claim correct Simple amount on 1040 line 28 ANd 64.01 on line 15B OR

Claim too much Simple on 1040 line 28 and Claim 1064.01 on line 15B?

Maybe there is another way to handle this. The American Funds feel the document is correct and they are only one of the world's largest companies so I'm sure they are never wrong.

Mahalo, in advance.
Bjorn.

[skhyatt]

Did they put a distribution code in box 7? I think I would report only the interest and of course make sure you have your docs in order just in case.

[skhyatt]

Now wondering

I'm now wondering if a Simple IRA can be corrected in that manner. Been looking and can't find a clear answer on that.

[skhyatt]

I'm wondering if this will be treated in the same manner as an excess 401k contribution. If I'm reading right, those excess contributions are included in the employees income and they are subject to a 10% penalty. The employee may withdraw the excess contribution from the plan before April 15th of the following tax year along with any income. If the excess remains in the plan past the April 15th distribution date, it will be taxed again when distributed. ( I assume at retirement). The penalty will not apply if the excess is recharacterized or distributed within 2 1/2 months following the plan year in which the excess contribution was made.

Would love to hear from others on this one. I have looked through three or four reference guides and cannot find anything that seems to address this specifically to Simple plans.

[skhyatt]

Could not let this one go. Still not 100% sure of the treatment, but it appears there would be 10% excise tax on the employer under code section 4972. Employee would be subject to a 6% excise tax, which he can avoid by withdrawing it.