Today TaxMama hears from David in North Carolina who wants to know. “If a self-employed taxpayer obtains a valid extension, then files a return before the extension deadline, can the taxpayer then establish and fund an SEP-IRA (before the extension deadline) and file Form 1040X to claim the deduction? Or does the extension end when the return was originally filed thus preventing the SEP-IRA from being established?
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Dear David,
I have to admit that my first reaction was – of course you can’t do that. You had to fund that SEP by the time you file that tax return. Come on, that’s SOOOO obvious!
Then, I thought about it. Then I did a little research. Not much, I admit, but enough to make me wonder.
The first thing I found is that IRS has a special section that addresses frequently asked questions about SEPs. https://www.irs.gov/retirement/article/0,,id=111419,00.html and there I read this answer to a similar question.
Contributions for a year must be deposited by the due date (including extensions) for filing your Federal income tax return for the year. https://www.irs.gov/retirement/article/0,,id=111419,00.html#21
As far as I am concerned, that doesn’t totally answer your question. What’s if you’ve already filed the return?
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Can you still fund the SEP until October 15th – or must you fund it before you file?
So I called the special toll-free number just for this unit at IRS – (877) 829-5500
After going through 2 or 3 sets of voicemail choices and sitting on hold listening to Swan Lake for 7 minutes, someone answered – Then switched me off to another extension, where I sat on hold for…another 10 minutes…was told that the person who answered the call ALSO was not the correct person and she would transfer me, yet again…so, back to hold for…another 8 minutes. Then, putting the phone on speaker, I accidentally disconnected the call. Which often happens to folks calling the IRS.
Finally, I just broke down and called the DC Press Office. IRS spokesman Bruce Friedland gave me this answer:
Question: A taxpayer with SEP IRA files an extension. Then files a return, say on July 30th. Can they still make a contribution to their SEP IRA until Oct. 15th?
ANSWER: I believe so. See Rev Ruls 66-144 and 84-18. And I assume the taxpayer is an individual.
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So, it seems that as long as you’re funding it before the deadline…you can still contribute. Which means you can amend that 1040 before the original filing deadline and get the full benefit of the contribution.
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And remember, you can find answers to all kinds of questions about funding SEP-IRAs and other tax issues, free. Where? Where else? At TaxMama.com
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- IRS FAQs :: Retirement Plans FAQs regarding SEPs
- IRS Answer to Question :: About deadline for funding SEPs
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