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Overcontributing To 401(k)s - Implications?  
User currently offlineN328KF From United States of America, joined May 2004, 6485 posts, RR: 3
Posted (4 years 8 months 3 days 16 hours ago) and read 1360 times:

I have determined that I somehow accidentally overcontributed to my 401(k) last year. I'm not sure how this occurred, but in any case, what are the implications of this? Do I have to pay taxes on the overage? Anyone else ever encountered this?


When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty.' T.Roosevelt
4 replies: All unread, jump to last
 
User currently offlineFlyPNS1 From United States of America, joined Nov 1999, 6608 posts, RR: 24
Reply 1, posted (4 years 8 months 3 days 16 hours ago) and read 1350 times:

Read the following:

http://www.fairmark.com/rothira/roth401k/excessdeferrals.htm

Bottomline, you should correct the excess or face getting taxed twice on the overrage.


User currently offlineN328KF From United States of America, joined May 2004, 6485 posts, RR: 3
Reply 2, posted (4 years 8 months 3 days 16 hours ago) and read 1347 times:

Quoting FlyPNS1 (Reply 1):
Bottomline, you should correct the excess or face getting taxed twice on the overrage.

Looks like I can just run the numbers when I get all of my tax forms here in a few weeks and decide what to do then. I was not aware that there was a "corrective distribution" action. Also, last year was a massive up year, so I was thinking that it might be worthwhile to leave it be and eat the taxes.

[Edited 2010-01-20 12:01:34]


When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty.' T.Roosevelt
User currently offlineStasisLAX From United States of America, joined Jul 2007, 3283 posts, RR: 6
Reply 3, posted (4 years 7 months 4 weeks 5 hours ago) and read 1213 times:

If you don't correct an excess contribution, you'll end up with double taxed situation where you're taxed on that money in the year you earn it and also in the year you take the money out of your account. To avoid that result you have to take a corrective distribution by April 15 of the following year. The corrective distribution will include the dollar amount necessary to bring your contributions within the limit, plus any investment earnings on that extra money for the time it was in your account.

Companies maintaining these plans generally have procedures in place to prevent you from going over the comtribution limits. Did you work for more than one employer in the same year?
To avoid being double-taxed, you must take a "corrective distribution" before April 15 of this year. The corrective distribution must include the amount necessary to putr your account into compliance, PLUS earnings, if any (given the state of the stock market) on the "excess" money while it was in your 401K account. Immediately contact the 401K administrator at your firm to determine what this amount should be, or contact the mutual fund company that's managing your 401K account. The most common mistake is forgetting to take the correct amount of earnings PLUS the invested principal to remain in compliance with the IRS.

[Edited 2010-01-25 22:27:16 by stasisLAX]


"Those who would give up essential liberty to purchase temporary safety deserve neither liberty nor safety!" B.Franklin
User currently offlineN328KF From United States of America, joined May 2004, 6485 posts, RR: 3
Reply 4, posted (4 years 7 months 3 weeks 6 days 21 hours ago) and read 1196 times:

It now seems that it was a non-issue. It's a discrepancy in the online reporting done by my 401(k) provider, but my W-2 form shows that I hit the limit exactly.


When they call the roll in the Senate, the Senators do not know whether to answer 'Present' or 'Not guilty.' T.Roosevelt
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