Disallowed Deferrals. If you determine at the end of any calendar year that more than half of your eligible employees have chosen not to make elective deferrals for that year, then all elective deferrals made by your employees for that year will be considered disallowed deferrals, for example, IRA contributions that are not SEP-IRA contributions. You must notify each affected employee by March 15 that the employee’s deferrals for the previous calendar year are no longer considered SEP-IRA contributions. Such disallowed deferrals are includible in the employee’s gross income in that preceding calendar year. Income allocable to the disallowed deferrals is includible in the employee’s gross income in the year of withdrawal from the IRA. Your notification to each affected employee of the disallowed deferrals must clearly state: ● The amount of the disallowed deferrals; ● The calendar year in which the disallowed deferrals and earnings are includible in gross income; and ● That the employee must withdraw the disallowed deferrals (and allocable income) from the IRA by April 15 following the calendar year of notification by the employer. Those disallowed deferrals not withdrawn by April 15 following the year of notification will be subject to the IRA contribution limits of sections 219 and 408 and thus may be considered an excess contribution to the employee’s IRA. For the employee, these disallowed deferrals may be subject to the 6% tax on excess contributions under section 4973. If income allocable to a disallowed deferral is not withdrawn by April 15 following the calendar year of notification by the employer, the employee may be subject to the 10% tax on early distributions under section 72(t) when withdrawn. Disallowed deferrals should be reported the same way excess SEP contributions are reported. Restrictions on Withdrawals Your highly compensated employees may not withdraw or transfer from their SEP-IRAs any SEP contributions (or income on these contributions) attributable to elective deferrals made for a particular calendar year until March 15 of the following year. Before that date, however, you may notify your employees when the deferral percentage limitation test has been completed for a particular calendar year and that this withdrawal restriction no longer applies. In general, any transfer or distribution made before March 15 of the following year (or notification, if sooner) will be includible in the employee’s gross income and the employee may also be subject to a 10% ...
Disallowed Deferrals. The Employer will notify each affected Participant, within 2 ½ months after the end of the Plan Year to which the disallowed deferrals relate, that the deferrals are no longer considered SEP-XXX contributions. Such notification will specify the amount of the disallowed deferrals and the calendar year of the Participant in which they are includible in income and must provide an explanation of applicable penalties if the disallowed deferrals are not withdrawn in a timely fashion. The notice to each affected Participant must state specifically:
