One person C-Corp has a SEP IRA - what are the rules of withdrawing funds from it?

[eva]

A previous tax preparer convinced my new client, who makes around 150K a year, to be a C-Corp.  She has a Fidelity SEP IRA.  She withdrew funds from it.  What are the consequences since the C-Corp funds the account?

Thank you.

[PhoebeRoberts · Accepted solution]

Same as any other IRA withdrawal. Once it's in the SEP, the funds are plain vanilla traditional IRA funds.

[eva]

How do I show the withdrawal on Form 1120 though?  This is a C-Corp SEP.

[IRonMaN]

You don’t since the C Corp side of the transaction was finished once they deposited the money with Fidelity.

[eva]

So if I understand it correctly, I show the withdrawal on her 1040?

[IRonMaN]

You understand correctly.

[IRonMaN]

You understand correctly.

[qbteachmt]

Corporations do not own personal retirement accounts. Humans own the retirement accounts.

[eva]

Yes; understand.  Thank you.

[Just-Lisa-Now-]

she should have received a 1099R for the distribution, you'd enter that on her personal tax return just like any other 1099R.

[eva]

She received one for 12K, but there is another distribution of 16K for which Fidelity didn't issue a 1099-R. If the IRS is not notified, what to do? Thanks, Lisa

[Just-Lisa-Now-]

Might want to have her call the bank and see why she didn't get any 1099R for the distribution.

[eva]

I looked again. Actually, client has four Fidelity accounts; three of them are personal, one of them is under the corporation.  It turns out that Fidelity did not report any of the distributions for the corp account, which were 12K + 16K.  However, there was also a 12K distribution from one of the personal accounts, and that got issued the 2099-R. So I still don't understand how come corporations can do this without any reporting obligation. Hmmm...

[Just-Lisa-Now-]

I'm guessing the corporation account isn't a retirement account, but some other type of account that can have money moved in and out of it without any tax consequence?

[eva]

Must be the reason; it may be just an investment account with no consequences of withdrawals.  Will reach out to the client and try to verify.  Thank you!

[qbteachmt]

"Actually, client has four Fidelity accounts; three of them are personal,"

Personal, of which Type: investment, money market, retirement (of which types)?

"one of them is under the corporation"

That's Never Retirement, unless you are describing Trust funds.

"It turns out that Fidelity did not report any of the distributions for the corp account, which were 12K + 16K"

If that simply is an Investment account, they would not report Removal of funds. They would report earnings and activities, such as on 1099-Int and 1099-Div and 1099-B. Taking or not, isn't part of the reporting.

[eva]

Thank you.  This must be the answer.

[eva]

Sorry; what I meant was that the personal accounts are Rollover IRA, regular IRA, and SEP IRA.  The corp doesn't specify, so it must be a straight investment account.

[qbteachmt]

"the personal accounts are Rollover IRA,"

"Rollover" is how it got Funded. That would likely be a Traditional IRA, then.

"regular IRA,"

= Traditional, as well. The brokerage might have allowed the person to send their Rollover to that existing Traditional IRA account, or combine them now. They are the same concept.

"and SEP IRA."

Again, a brokerage might allow one "sheltered" account to hold all Traditional, SEP and Rollover IRA funds of that same type = falling under the same regulations. Or, once they are no longer operating the C corp, the would "transfer" the SEP IRA into the Tradition IRA, to reduce the number of accounts they manage. That's why you need to know the Types of accounts.

[eva]

Thank you again!