Client is married couple filing jointly.2006 Schedule C income overstated.Error in failing to report $72K expense item.Thus 2006 SEP contribution upper limit overstated.Client contributed maximum to SEP.Does client need to withdraw overcontribution, add to income, pay 10% early withdraw penalty?IRS has failed to answer question.
Yes, client needs to withdraw the overcontribution, add to income, pay the 10%, etc.
This happened to me several years ago.
If perchance the client paid that money (or the amount which turns out to be overcontributed, at any rate) literally during calendar year 2007, they could consider it to be the first payment toward their 2007 SEP, rather than part of their 2006 SEP.
If that is the case, they need not withdraw anything. If the institution where they have the SEP, does not wish to change its own records to reflect that so much of the payment originally made on, say, 4/11/07, is a 2007 contribution rather than 2006, at least the client can keep their own records as to which year's contribution is which, and that should suffice.
Hope this helps.
Slightly different scenario...I overcontributed to SEP IRA account with Fidelity by about $4000. TT says withraw it by April 15th to avoid penalty (which is tomorrow!!)? Do I simply go the Fidelity account and withdraw the excess amount and ask for the 10% not to be withheld? And must I file some kind of form other than the TT return which I hope to file by midnight tomorrow. HELP!!
On what day, literally, KG, did you put in the $4K too much -- was it during 2009? In that case, just pretend you didn't put it in for '08, but call it the first part of your '09 contribution.
Otherwise, you do indeed have to go thru all the fol-de-rol of getting Fidelity to give you back the $4K plus earnings (if any -- might be losses in this economy, in which case they'll give you the net value now, which might be as low as $2500). Fidelity will give you whatever forms they have to give you. You'll be stuck paying the stupid 10% as well, either as a withholding from the Fidelity check, or paying it with Form 5329 that goes with your return -- assuming you're under 59 and a half as of today, 4/15/09.
Fidelity's forms might come a year from now, and might be applicable to '09.
My advice for everyone, from now on: Pretend you're only allowed a SEP percentage of about 10% or so, in the software, instead of the true maximum. Make your SEP contribution based on the 10% so you're not over-contributed. Then if you want, you can pay more right before you send in your tax return -- including going on extension to get more time to put more into your SEP.
