ComplianceTax & AccountingMarch 28, 2019

SEP and SIMPLE IRA contribution reporting: Alleviating some of the confusion

Overview

The deadline to report individual retirement account (IRA) contribution information to both the Internal Revenue Service (IRS) and to IRA owners is May 31 each year. Contributions to traditional IRAs, including simplified employee pension (SEP) contributions, and Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRAs, are included in this reporting. An important distinction to understand and communicate to employers and account owners is how prior year SEP and SIMPLE Plan IRA contributions are reported vs. how prior year IRA regular contributions are reported.

Reporting SEP and SIMPLE plan contributions

IRA custodians/trustees report SEP and SIMPLE contributions on IRS Form 5498, IRA Contribution Information. Box 8 reports amounts contributed to a SEP IRA and Box 9 reports amounts contributed to a SIMPLE IRA. However, unlike regular contributions made to traditional and Roth IRAs, SEP and SIMPLE contributions are reported for the year in which they are received by the custodian/trustee. Therefore, a SEP or SIMPLE contribution made in 2019 for 2018 will be reported on a 2019 Form 5498 (not a 2018 Form 5498), even though an employer deducts the contribution on its 2018 income tax return. Another way to state this is the 2019 Form 5498 will include all SEP and SIMPLE contributions made during calendar year 2019 which could include contributions made for tax years 2018 as well as 2019. This is often a confusing issue for some business owners and their tax professionals.

Why the inconsistency?

So, why are prior year SEP and SIMPLE IRA contributions not reported in the same manner as prior year IRA regular contributions? It is likely due to the fact that employers can make SEP and SIMPLE contributions as late as their tax-filing deadline, including extensions, whereas a tax-filing extension that an individual is granted will not extend the deadline to make an IRA regular contribution for the previous year. Since the tax-filing due date for an employer could be much later than the Form 5498 reporting deadline (May 31), this could result in a reporting nightmare with respect to reporting late and corrected Forms 5498 for the later SEP and SIMPLE contributions.

In support of this reasoning, the IRS states in its 2018 reporting instructions for Box 8:  “Enter employer contributions made to a SEP IRA (including salary deferrals under a SARSEP) during 2018 including contributions made in 2018 for 2017, but not including contributions made in 2019 for 2018. Trustees and issuers are not responsible for reporting the year for which SEP contributions are made.” Additionally, the Box 9 reporting instructions state: “Enter contributions, including deferrals, made to a SIMPLE IRA during 2018. Trustees and issuers are not responsible for reporting the year for which SIMPLE contributions are made.” In comparison, Box 1 which reports traditional IRA regular contributions, reads “Enter contributions to a traditional IRA made in 2018 and through April 15, 2019, designated for 2018.”

Conclusion

The deadline for an individual to make a 2018 IRA regular contribution is fast approaching, and contributions made from January 1, 2019 through April 15, 2019 designated for 2018 will be reported on a 2018 IRS Form 5498. However, SEP and SIMPLE IRA contributions made during the same period, or any time during 2019, will be reported on a 2019 IRS Form 5498, regardless of the tax year (i.e., 2018 or 2019) for which they were made.

Steve LeRoux
Senior Specialized Consultant, Tax Advantaged Accounts
With more than 36 years of experience, Steve has worked closely with hundreds of financial organizations to help them create, implement, and maintain their tax-advantaged accounts program. Steve also has an extensive background in working with employer qualified plans.