I had the following questions on a SEP.
Our financial institution set up a SEP for my spouse who is self employed. My spouse has no employees and is therefore the only participant in the SEP. My spouse contributed weekly to the SEP.
- When I reviewed our SEP statement for 2006 I noticed that the contributions made in the first half of the year were noted as employer contributions, but contributions made in the second half of year were noted as employee contributions (I believe we may have accidently changed this classification when we changed the weekly contribbution amount). With only one participant in the SEP (my spouse), does it matter whether the contributions are labeled employer vs employee?
- Based on a preliminary analysis, we may have had a small excess contribution made to the SEP in 2006. Can this be reversed? Again, does it matter that the contributions during the year were labeled employer and employee contributions? Can I only withdraw the "employee" contributions to reverse out the excess contribution by my tax filing date to avoid the potential excise tax? My wife has an IRA as well. Can we just reclassify some of the contributions to the IRA that's held by same financial institution?
- If we did incur the excise tax, would it be the 6% as an employee, or the 10% as the employer?
- With only one person in the plan, do we need to have a written plan formulas (ie, set contribution rate) as suggested in IRS publication 560? I would think that with one participant, discrimination could not occur so this set contribution rate would not be required.
- My tax software asked if we had any elective deferrals to our SEP? (This is not a SAR-SEP.) What's an elective deferral, and how can I tell if we had any? Thanks
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