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  • 1.  SEP Contribution

    Bronze Most Valuable Member
    Posted 05-20-2022 07:58 AM
    If a client passes away and his return is on extension, before the contribution was made for the extended year, is it still allowed. The bank says they can't accept it. Any technical reference, since I believe it's still allowable?

    Gerald S. Cohen, CPA
    cell 516 455-0643

  • 2.  RE: SEP Contribution

    Posted 05-21-2022 04:54 AM
    The IRS holds that given the death, there is no longer a reason/benefit/need to be saving for retirement.

    I had same issue when researching making ROTH IRA contribution for 2021 after a death in early 2022 before April 15th.

    Jason Palmer
    Palmer Computer Services Inc
    Cell 917-886-3312

    Sent from my iPhone

  • 3.  RE: SEP Contribution

    Posted 05-22-2022 09:53 AM
    The general rule for making IRA contributions after an individual dies is that you can't.

    For instance, let's say that Michael, age 55, earned $50,000 before he died in 2021. If he has not already made an IRA contribution for the year, his spouse, or the representative of his estate, cannot make a contribution for him after his death. IRS has a very logical explanation for this rule - there is no need for a deceased person to save for their retirement. It is hard to argue with that logic.

    However, as is the case with many of the IRA rules, there is an exception. Let's say that Michael is married to Kelly. Kelly lost her job during the recession and has not been able to find another job. Michael has been making spousal IRA contributions to Kelly's IRA for the last couple of years. We know that there can be no contribution to Michael's IRA now, but can a spousal contribution still be made to Kelly's IRA?

    Generally speaking, the answer is yes. As long as Kelly files her tax return as married filing jointly, she will be able to make an IRA contribution to her IRA based on Michael's earned income. There is still a need for Kelly to save for her retirement.

    Ronald Stair, PHD, MLT, EA, ERPA
    East Meadow NY

  • 4.  RE: SEP Contribution

    Silver Most Valuable Member
    Posted 05-21-2022 07:34 AM
    It's kind of a strange rule, but once the taxpayer dies, there is no further IRA contribution allowed based on the IRS theory that there is no more retirement need.  So even if the taxpayer dies in March 2022, and would be otherwise eligible for a 2021 IRA, a contribution is not allowed to be made after DOD.

    But, the rule is different for a SEP IRA.  The contribution would be allowed because the IRS says that this contribution is made by the employer.  So the answer to your question is YES and this difference needs to be explained to the bank.  

    Larry Prosky CPA
    Prosky & Rosenfeld LLP CPAs

    1025 Old Country Road
    Suite 403 W
    Westbury, NY 11590
    Direct: 516-873-9600 x1
    Fax: 516-873-9602
    Cell: 516-785-5658 or 516-661-6020

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