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Investing/Strategies / Retirement Investing
|Subject: Re: 401k over-contribution||Date: 2/2/1998 8:23 PM|
|Author: Kilmarnoch||Number: 1601 of 77564|
<<I inadvertently contributed 46.00 over the max for 1997. [...] Since the information came late my current firm cannot or will not back it out of 1997. What do I face now with my tax returns and future contributions?>>
<<Well, you can't get it back from either plan, so the simplest is to include it in income even though the W2s show it as excluded. Then attach an explanatory note to say why. I'm not a tax expert, though, so you may want to ask this over in the Tax Strategies folder where those beasties reside.>>
Tax expert I am *not*... my take on it is if any 401k plan you contributed to allows corrections you can get the excess back from whichever plans you choose. If none of your plans allow corrections it you simply pay tax on the over contribution twice (once going in and once coming out, but no penalties)...
I would try checking with the plan administrators before giving up...
Lots of luck,
IRS pub 575 on page 16:
[[**Treatment of excess deferrals.**
If the total you defer is more than the limit for the year, you must include the excess in your gross income for the year. If the plan permits, you can receive the excess amount. Although your employer must report on your Form W-2 the total amount of your elective deferrals, you (not the employer) are responsible to monitor the total you defer to ensure that the deferral limit is not exceeded. As explained below, you must notify the plan if you exceed the limit on excess deferrals.
If you participate in only one plan and it permits these distributions, you must notify the plan by the date required by the plan that the deferral was too large. The plan must then pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year.
If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. The plan must then pay you that amount by April 15.
If you take out the excess by April 15, do not again include it in your gross income. Any income on the excess taken out is taxable in the tax year in which you take it out. Neither the excess nor the income is subject to the additional 10% tax on distributions before age 59 1/2.
If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income. If you do not take out the excess amount, you cannot include it in your cost of the contract even though you included it in your gross income. Therefore, you are taxed twice on the excess deferral left in the plan-once when you contribute it, and again when you receive it as a distribution.
**How to report a corrective distribution of an excess deferral.**
Although you must report excess deferrals on your return as wages, your employer does not include them as wages on the Form W2 you receive. File Form 1040 to add the excess deferral amount to your wages on line 7. Do not use Form 1040A or Form 1040EZ to report corrective distributions of excess deferral amounts.
If you received a distribution in 1997 of a 1997 excess deferral, you should receive a 1997 Form 1099R with the code "8" in box 7. Report the excess deferral on your 1997 income tax return.
If you received the distribution in 1997 of income earned on an excess deferral, you should receive a 1997 Form 1099R with a code "8" in box 7.
Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Include the loss as a negative amount on line 21 (Form 1040) and label it "Loss on Excess Deferral Distribution."]]
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