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N328KF
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Overcontributing To 401(k)s - Implications?

Wed Jan 20, 2010 7:26 pm

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.' -Theodore Roosevelt
 
FlyPNS1
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RE: Overcontributing To 401(k)s - Implications?

Wed Jan 20, 2010 7:53 pm

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.
 
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N328KF
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RE: Overcontributing To 401(k)s - Implications?

Wed Jan 20, 2010 8:00 pm

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.' -Theodore Roosevelt
 
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stasisLAX
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RE: Overcontributing To 401(k)s - Implications?

Tue Jan 26, 2010 6:15 am

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]
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N328KF
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RE: Overcontributing To 401(k)s - Implications?

Tue Jan 26, 2010 2:57 pm

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.' -Theodore Roosevelt

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