First question, do you actually need to fix this? If you are remainign husband and wife, then this is not necessarily an issue at this point.
You likely can fix this. From what I know generally about most IRA and retirment account laws, you can probably pull the money out and roll some of the money into the second account so long as you did so within the designated time period. There are other tax traps and rules for roleovers, so do not attempt this without the help of a CFP. Not a banker, not a best friend, a CFP. This is typical for most IRAs.
However, I would highly recommend speaking with a CFP (certified financial planner) about this first. I am friends with the best CFP in WA, and can provide you his number if you wish to ask some questions to double check what you can do in this situation.
Matthew Johnson phone# 206.747.0313 is licensed in the State of Washington and performs bankruptcy, short sale negotiations, and estate planning in Whatcom, Skagit, Snohomish, King and Pierce counties. The response does not constitute specific legal advice, which would require a full inquiry by the attorney into the complete background of the facts and circumstances surrounding this matter; rather, it is intended to be general legal information based on the limited information provided by the inquirer; it This response also does not constitute the establishment of an attorney-client relationship, which can only be established after a conflict of interest evaluation is completed, your case is accepted, and a fee agreement is signed. Johnson Legal Group, PLLC
Your question has several facets. I too think that you need professional assistance to help you sort this out. I would suggest a CPA or tax attorney because this is an Internal Revenue Code dominated area. You need to clarify the nature of your business and how you are reporting for it for income tax purposes. You say that both spouses are owners. Consider whether you are reporting for the business correctly. It may be reportable as a partnership or as a qualified joint venture. It is not reportable on one business schedule of a joint income tax return if two people are involved. You also need to clarify what you have set up for the SEP. A SEP is a written arrangement that has to be provided to the participants. What does that writing provide? If there is separate paperwork with the Investment Company with which you set up the arrangement, what does it provide? Is the SEP, as it is currently structured, consistent with the nature of your business (is each of you considered an “employer” for purposes of a SEP? If one of you is an “employee” for purposes of a SEP, nondiscrimination rules may apply). Deciding whether/how to fix an allocation of contributions for one year depends on first clarifying what is wrong.
This is a complex area of tax law. It may be best to discuss with a qualified CPA. If you and your spouse filed a joint tax return, it probably is not a significant issue, unless your contribution exceed the annual contribution limitation. We do not know the amount of your contribution. If you exceeded the annual limits for a contribution that could be a problem. You may need help with the IRS in determining how to report and correct the mistake. Hopefully this will not turn into a penalty situation for your family.