SlipperyPencil wrote:Client switched jobs. 401k deferrals exceed limit. The company administering the 401k is giving him a hard time. They state they have a March 1st deadline to refund excess contributions. Any ideas how he can get them to comply with his request for a refund?
We have discussed the topic of leaving the over contribution in the fund, if the permissible period has passed, here is the thread:
viewtopic.php?f=8&t=12065 . To summarize:
1 - You add the over contribution back to the income as an excess deferral in the year when it was over contributed.
2 - You leave the money in the fund until it becomes permissible to withdraw which is usually when the taxpayer reaches retirement age.
3 - You pay tax again on the over contribution and pay tax. You pay tax on the earning anyway.
4 - There is no 6% yearly exercise tax which applies to IRA not 401(k).
5 - The over contribution cannot be applied as next year's contribution (unlike HSA).
The only question I have is after many years after the taxpayer retire, she might have changed several employers, and the 401(k) has been rollover many times, how can she keep track of the over contribution, and what is the process to have 1099-R issued?
PS, reference from the IRS itself:
https://www.irs.gov/retirement-plans/co ... -401k-plan .