How to fix an excess contribution to a SEP IRA
In '25, I contributed too much to my personal SEP IRA for '24. I had part of the excess recharacterized as a trad. IRA contrib for '25 and am using a form to withdraw the remaining excess. All seems clear except I have to choose a correction method- IRC404(h) or EPCRS. Which do I choose? What happens if I choose incorrectly? Will there be other documents or forms required later depending on my choice? (I filed for an extension for '24 taxes. I will not have any self-employment income in '25.)
Quick Answer:
Since you're correcting an excess SEP IRA contribution for a prior tax year (2024), and you have no 2025 self-employment income, IRC Section 404(h) is not applicable. This section deals with correcting *current year* excess contributions to defined contribution plans.
You must use the Employee Plans Compliance Resolution System (EPCRS). Choosing the wrong method is a procedural issue, not a substantive one. The IRS will guide you towards the correct method if you initially select the wrong one. EPCRS involves completing Form 5329. Depending on the amount of the excess contribution, additional forms or documentation might be requested by the IRS as part of the EPCRS process. Your tax extension for 2024 is irrelevant to this correction.
Note: This answer is provided for convenience only. It is important that you speak to a CPA about your individual tax situation.
