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Contributed too much to a solo 401(k)

Technical topics regarding tax preparation.
#1
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Have a client who is the sole owner and employee of an S corporation. Maxed out his employee contributions. For the employer portion he contributed more than the 25% limit by a few thousand. I know this is a problem, but I am confused. What is the next step...he obviously has to pull that money back out...is it early enough to avoid penalties?
Thanks,
Jake
 

#2
JR1  
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Depends on when. If contributed in 19, just consider the excess a 19 contribution. Otherwise, he'll have to contact whoever's holding the money and get it returned....
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#3
JAD  
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Per the IRS, general info

https://www.irs.gov/retirement-plans/on ... 401k-plans

How to correct

https://www.irs.gov/retirement-plans/40 ... istributed

hopefully this paragraph applies:

Timely withdrawal of excess contributions by April 15

Excess deferrals withdrawn by April 15 of the year following the year of deferral are taxable in the calendar year deferred.
Earnings are taxable in the year they're distributed.
There is no 10% early distribution tax, no 20% withholding and no spousal consent requirement on amounts timely distributed.

The firm holding the account may be helpful. They've probably dealt with this before.
 

#4
Doug M  
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For the employer portion he contributed more than the 25% limit

Regicide-the wages to be considered are generally defined in the adoption agreement, but you do not reduce the wages by the amount of the EE deferral. Generally, box 5 is the correct number to use. Also, there is debate about SEHI included in wages as being compensation for the 25%.
 

#5
dsocpa  
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Doug M., I always thought the SEHI was considered compensation if stated in the plan document.
 

#6
Doug M  
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I include it. Most documents are not going to allude to SEHI specifically. My position is, the IRS tells us to put this in the wage/compensation box. There are risks with this. 25% of SEHI can easily be $3,000 additional contribution.

I have seen adoption agreements where the 125 cafeteria elections (not showing in W-2) get added back as wages.
 

#7
JR1  
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It's included automatically on my W2's....
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#8
dsocpa  
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Doug M. You are correct not specifically stated but I have seen "all cash items of compensation" which I take to mean any cash paid to or on behalf of the employee - excluding property.
 

#9
Doug M  
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I am trying to make sure there is an actual excess. Regicide will clarify this.

As to the OP, no excess deferrals here. The excess is from an ER contribution.

Assuming excess was paid in 2018, get it out by the due date of the return (plus earnings), so put the return on extension.
 

#10
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Hey all, thanks for your responses. Doug, fellow Portlander, wish we could be in the sun right now...
SEHI is not an issue -- he is covered under his wife's plan at her job.
JAD -- thanks for the links...
The ER contribution was made in 2018. Sounds like he just has to get it out by April 15th, and it'll just be taxable, no penalties. It could be worse. Not a huge over-contribution -- he should've only contributed 19,750, he contributed 22,000. So yeah, could be worse. Nothing is easy this time of year. Really really appreciate all of your input.
 


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