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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