sep excess

[stern100]

I've got a self employed client who contributed too much to their sep.
I've read the previous posts on the subject & pub 560, still confused.
Can they carry over the excess indefinately w/o 10% penalty or should they withdraw the excess. Any forms to file?

[Corduroy Frog]

Grab the Stern

Mr. Stern, and see if the custodian can issue a 1099-R for the excess. I don't know whether they can or can't under their rules.

This is commonly done for plans determined to be top-heavy. Not the best situation, but better than a withdrawal - the taxpayer is spared the penalty. Of course, in the case of a company plan, the custodian is in a position to determine, and is under obligation to issue a 1099.

Custodian is not in a position to determine an excess SEP.

Next question...did the customer DEDUCT too much, or simply contribute too much? If he deducted too much, there will have to be an amended return even if request for a 1099R is successful.

[geekgirldany]

I found this on the IRS website:
What are the consequences to employees if excess contributions are made?

If contributions are made in an amount that is more than is allowed, there are tax implications for the employer and the employees. Excess contributions are included in employees' gross income. If an employee withdraws the excess contribution, and earnings on such amount, before the due date for filing his/her return, including extensions, the employee will avoid a 6% excise tax imposed on excess SEP contributions in an IRA. Excess contributions left in the employee’s SEP-IRA after that time may result in adverse tax consequences to the employer and the employee. If the employer contributes more than it may deduct, it may be subject to a 10% excise tax.

http://www.irs.gov/retirement/article/0,,id=111419,00.html#24

[Kram BergGold]

Sep Excess

First I assume this is a contribution for 2006. If it was made in 2007 then just allocate some to 2007. If it was made in 2006 then either withdraw the excess, there may or may not be penalties, or leave the excess in and apply it to 2007 and pay a 10% penalty in 2006 on the excess. Be careful, if the client has little or no SE income in 2007 then additional penalties may result. You can't leave the excess in without a yearly penalty.

[stern100]

thanks folks, it was a calendar year 2006 sep contribution and did not deduct the excess so will probably withdraw it before the 10/15 extension.