Simple Excess Contributions

[geekgirldany]

I have a customer that contributed to much to a Simple IRA in 2006. He is 55 so he was allowed to contribute 12,500 but he contributed 15,500. I am willing to own up to my mistake. I deducted 15,500 on his 2006 tax return for the simple ira. This was filed before April 07. So no extension. The only way this came to my attention is that his investment advisor sent me a letter telling me he had contributed $16,000 for this year 2007 and to let him know if it needs to be adjusted. I looked back on the customer's previous year return and found my mistake.

What can I do to correct this?

I know I will have to file an amended return because it has already been deducted. What else will happen? I assume he will be subject to a 6% penalty. I will pay this because I do feel it was my fault for not catching it. I will also need to talk to his investment person about this.

I am not sure why the investment person let him over contribute twice? He made one lump sum payment in 2007 for $12,500 and then monthly $500 contributions. My customer does have a 401K for his employees but he has a simple. Isn't there something about a $15,500 limit when there are two plans?

Thank you
Dany

[New York Enrolled Agent]

My customer does have a 401K for his employees but he has a simple. Isn't there something about a $15,500 limit when there are two plans?

Thank you
Dany

If I understand the post correctly, you may have a bigger problem than overfunding. My understanding (others may see it differently) is that unless the employees are covered by a collective bargaining agreement, you can't have two plans. §408(p)(2)(D) says the plan will not be a qualified salary reduction arrangement if the employer maintained a qualified plan during the same year. Obviously, we need to know more facts but you might have no salary reduction for your client.

[geekgirldany]

I am going to give the customer and the investment person a call. I was looking over the letter again. It calls the $500 contribution payments made through group bill setup. The customer told me it was a 401K for the employees... it might be Simple IRAs instead. I'll just have to call their investment person to find out what is going on. Thank you for the reply.