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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75777  
Subject: Re: 403(b)rollovers Date: 12/13/1999 1:35 PM
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TMFPixy writes (in part):

That's no super biggie because the amount is small. Essentially, you can just include it as income on line 7 on your 1040 and leave it in the 403b. That [$160.11] will be taxed again on withdrawal from the plan, but over the years the compounding should offset the taxes anyway.

I reply:

Thanks, Pixy. I've now reviewed Publication 571 as you suggested, and I want to confirm my understanding. My wife did NOT defer as much as 25% of her pre-reduction salary (although, of course, since she exceeded 20% of her pre-deferral salary, she necessarily exceeded 25% of her post-deferral salary), so we are not faced with future reductions in her exclusion limits. Thus, as you describe, the only consequence is double taxation.

However, our other option is to request by March 1, 2000, that the plan custodian remit the excess contribution to us, along with its earnings. In that case, we may exclude the excess contribution this year, but we will be required to include the distribution as taxable income for 2000. As long as we receive the distribution by April 17, 2000, we will not owe the 10% penalty. In our personal situation, the income shifting may be a good thing, so I'm gonna consider this option. Is my understanding correct? Thanks again. --Bob
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