SEP contribution limit exceeded

[imjulier]

Have a self-employed client who put 10,000 in his SEP when only about $6500 should have been allowed and is deductible. I think I should just take the allowed amount on page 1 of the 1040. Is he allowed to get the rest back? Should I handle this any differently? I told him last year that he should wait until his taxes are done to get the amount from me but he thinks that is too complicated.

Thanks,

Julie

[imjulier]

Does anyone know on this?

[LindaB]

Have a self-employed client who put 10,000 in his SEP when only about $6500 should have been allowed and is deductible. I think I should just take the allowed amount on page 1 of the 1040. Is he allowed to get the rest back? Should I handle this any differently? I told him last year that he should wait until his taxes are done to get the amount from me but he thinks that is too complicated.

Thanks,

Julie

He has to take the excess contribution or there will be a penalty. He also needs to withdraw any earnings on the excess contribution. Yes, use the allowed amount as a deduction on his 2008 return. How the withdrawl is handled will depend on whether he does it before the due date of the return, or after. See pub 590 for details. It is a little more complicated than waiting.

[JohnH]

Tell him next time to make the SEP contribution after the first of the current year. Then he can allocate the proper amount to the prior year and the excess to the current year. (Although it doesn't sound like he listens to advice very well).