Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

Self employed person (no employees) was set up for automatic…

Customer Question
Self employed person (no employees)...
Self employed person (no employees) was set up for automatic monthly contributions to her SEP plan during 2016. When she prepared her 2016 tax return in April 2017, her CPA determined that there was an excess contribution made of $965. The correct amount was deducted on her 2016 tax return, but the excess was not distributed from her SEP IRA. From what I read, she would now have to file Form 5330 to pay the 10% excise tax, but can leave the 2016 excess contribution of $965 in the SEP IRA and apply it to her 2017 contribution (she turned off the automatic contributions to her SEP IRA and once her amount is determined for 2017 she will reduce the deposit by the $965). Is that correct or am I missing any other step?
Submitted: 9 months ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 10 minutes by:
10/31/2017
Tax Professional: Lev, Tax Advisor replied 9 months ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,380
Experience: Taxes, Immigration, Labor Relations
Verified

Yes - that is correct.

Excess contributions left in the employee’s SEP-IRA after that time will be subject to the 6% tax on the employees’ IRAs, and the employer may be subject to a 10% excise tax on the excess nondeductible contributions.

https://www.irs.gov/retirement-plans/sep-fix-it-guide-contributions-to-the-sep-ira-exceeded-the-maximum-legal-limits

There is another option - to treat that SEP IRA contribution as regular traditional IRA contribution.

That is - SEP IRA account is just a regular IRA account to hold SEP IRA contributions.

Because a SEP-IRA is a traditional IRA, you may be able to make regular, annual IRA contributions to this IRA, rather than opening a separate IRA account.

Questions?

Ask Your Own Tax Question
Customer reply replied 9 months ago
Does the self employed person pay both the 6% excise tax on Form 5329 as the SEP IRA participant and also the 10% excise tax on Form 5330 as the employer? If so, would that be different if the excess SEP IRA contribution is treated as a regular traditional IRA contribution (the other option you mentioned)?
Tax Professional: Lev, Tax Advisor replied 9 months ago

Form 5330 is not used by self-employed taxpayers - only form 5329 will be used for excise tax purposes.

If you treat a part of THAT contribution as a regular traditional IRA contribution - there is NO excise tax and no need to use Form 5329.

In this case - traditional IRA contribution is deducted on 1040 line 32

or if the taxpayer doesn't qualify for the deduction - use form 8606 to claim nondeductible contribution.

Ask Your Own Tax Question
Customer reply replied 9 months ago
Sorry, but your second reply has me confused moreso. In your first reply you stated I was correct when I talked about the self-employed person filing Form 5330 to pay the 10% excise tax on the excess SEP contribution, but then your second reply stated that Form 5330 is not used by a self-employed taxpayer. Based on the scenario that the self-employed person made an excess contribution of $965 into her SEP for 2016 and it still remains in the SEP as she wants to consider it part of her 2017 contribution, what tax form does she have to file to correct her situation?
Tax Professional: Lev, Tax Advisor replied 9 months ago

Sorry for confusion.

Form 5330 is used by plan administrators for employee's contributions and 10% excise tax is paid by an employer.

Self-employed person only pays 6% excise tax and only use form 5329.

There is a special rule for self-employed individuals - the 10% excise tax doesn't apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference isn't subject to this excise tax.

Based on the scenario that the self-employed person made an excess contribution of $965 into her SEP for 2016 and it still remains in the SEP as she wants to consider it part of her 2017 contribution, what tax form does she have to file to correct her situation?

There is NO any special form to be used in such scenario.

Ask Your Own Tax Question
Tax Professional: Lev, Tax Advisor replied 9 months ago

I appreciate if you take a moment to rate the answer.

Experts are ONLY credited when answers are rated positively.

If you still have any doubts, need clarification - please be sure to ask.I am here to help you with all Social Security / Tax related issues.
Ask Your Own Tax Question
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a tax professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask Lev Your Own Question
Lev
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,380
33,380 Satisfied Customers
Experience: Taxes, Immigration, Labor Relations

Lev is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,338 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,512 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

PhillipsEsq.

PhillipsEsq.

Attorney-at-Law

59 satisfied customers

B.A., M.B.A, J.D.

Robin D.

Robin D.

Senior Tax Advisor 4

15,569 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,655 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

< Previous | Next >

Related Tax Questions
Excess sep contribution; s/e individual (no employees) in
excess sep contribution; s/e individual (no employees) in 2017. the contribution was for the 2016 return. Correct amount was deducted. Wondering how to get the excess contribution out of the account a… read more
Bill
Bill
Master's Degree
2,278 satisfied customers
I'm researching a tax issue for a client. She has several
I'm researching a tax issue for a client. She has several LLC's taxed as partnerships for tax year 2015. In one partnership, she has no self employed income, but does have approx $25,000 in rental inc… read more
Lev
Lev
Tax Advisor
Bachelor's Degree Equivalent
33,380 satisfied customers
This question is for Lane, JD,CFP, MBA My wife and myself
This question is for Lane, JD,CFP, MBAMy wife and myself would like to establish SEP IRAs. I am 70 plus years of age and still working; I have a regular IRA, Roth IRA and 403B and 407B plans trough my… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
If you're self-employed and contribute to a SEP IRA above
If you're self-employed and contribute to a SEP IRA above the limit, with contributions all made in 2016, where do you indicate the non-deducible excess amount on your 2016 return (1040)? And what's t… read more
Lev
Lev
Tax Advisor
Bachelor's Degree Equivalent
33,380 satisfied customers
2016 retirement contributions Husband gross W-2 $190k,
2016 retirement contributions Husband gross W-2 $190k, covered by 403b Wife $10k net from schedule C; no W-2 What are our options for contributions? IRA SEP Can we choose Roth or not for each/either? … read more
Lev
Lev
Tax Advisor
Bachelor's Degree Equivalent
33,380 satisfied customers
SEP IRA question: If I make a contribution to my SEP IRA in
SEP IRA question: If I make a contribution to my SEP IRA in February 2017 to apply to 2016, but my contribution is over the calculated limit based on my self-employed profit... can I just leave the ex… read more
Lev
Lev
Tax Advisor
Bachelor's Degree Equivalent
33,380 satisfied customers
Recharacterize Roth ira question. Until 2013 I was doing
Recharacterize Roth ira question. Until 2013 I was doing Roth IRA contributions. For tax year 2014 I have opened SEP IRA as I was on 1099. For tax year 2015 I opened non-deductible traditional IRA in … read more
Lev
Lev
Tax Advisor
Bachelor's Degree Equivalent
33,380 satisfied customers
What can happen if I contribute too much to my IRA?
What happens if I contribute too much to my IRA in a tax year? Let's say the max I can contribute is $3,250, but I contribute $3,500 instead – is there a penalty? Does my IRA become fully taxable? I h… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,569 satisfied customers
I'm a sole proprietor filing schedule C. Two questions
I'm a sole proprietor filing schedule C. Two questions regarding the Sep IRA I have set up: 1) When is the last day I can contribute. Is is 4/15/2017? 2) Let's say I earn $60K with $10K expenses, so $… read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,693 satisfied customers
A sole proprietor contributed excess SEP contribution on
A sole proprietor contributed excess SEP contribution on April 18, 2016 towards his 2015 contribution. He is amending the tax return to reflect the correct amount of SEP contribution. How does he with… read more
Lev
Lev
Tax Advisor
Bachelor's Degree Equivalent
33,380 satisfied customers
In 2014 my tax form was correct in amount that I claimed for
In 2014 my tax form was correct in amount that I claimed for my SEP IRA contribution of $13,600 but I ended up sending $20,000 tot he fund. How do I correct his. For 2015 tax year UI am eligible to co… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I am self employed and set up a SEP account at TIAA-Cref. I made an excess contribution t
I am self employed and set up a SEP account at TIAA-Cref. I made an excess contribution to my SEP account in 2012 in the amount of $5500. I paid taxes on that amount. How do I withdraw the funds and w… read more
Megan C
Megan C
Certified Public Accountant (CPA)
Master's Degree
8,655 satisfied customers
Bill, I am self-employed sole proprietor and just discovered
Bill, I am self-employed sole proprietor and just discovered that I made an excess contribution of $13,332 to my 2012 SEP/IRA. To late to remove it without penalty. Can I keep the excess in the SEP ac… read more
Bill
Bill
Master's Degree
2,278 satisfied customers
filling out form 5330 for overpayment of SEP -IRA contributions
filling out form 5330 for overpayment of SEP -IRA contributions by SCorp in 2010 and 2011. Do I need to put in both the EIN of the scorp AND the SS# XXXXX the Sep-Ira holder on the form?… read more
fastfile
fastfile
Tax Advisor
Master's Degree
550 satisfied customers
Hi Steve; How many years can you carryforward a SEP contribution
Hi Steve; How many years can you "carryforward" a SEP contribution? Can it be "carryforwarded" indefinately until it is used up (as net profit by year allows? I have been told by other CPAs that typic… read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
A self employed person contributed too much to his SEP for
A self employed person contributed too much to his SEP for 2009. I believe taxpayer must amend 2009 reflecting the proper maximum deduction of 25%. The excess doesn't have to be withdrawn, but can be … read more
Bill
Bill
Master's Degree
2,278 satisfied customers
Im married and filing jointly. Both me and my spouse made
I'm married and filing jointly. Both me and my spouse made the maximum traditional IRA contribution. In 2008, our MAGI high enough that if either spouse participated in an employer retirement plan no … read more
RD
RD
Self Employed
Master's Degree
1,164 satisfied customers
We overpaid on our SEP in 08 and have left the overpayment
We overpaid on our SEP in '08 and have left the overpayment in there. Hence, do I show the allowed amount of deduction on line 28, pag 1 of 1040 and the overage on form 5330 and pay the excise tax? (s… read more
Merlo
Merlo
Tax Consultant
558 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x