@TheGuttes wrote:
Thank you all. Let me make sure that I understand what this means on a practical basis. First, I have to amend my taxes to reflect that amounts contributed to my 401(K) above the $22,500 level are taxable income. Second, I can (and probably should) withdraw the excess contributions to the Roth, because they are no longer entitled to the sheltering of earnings they otherwise would have received on distribution.
Yes and no. Please read the replies from @dmertz .
[Edited for correction]
Yes, you must report the excess deferrals to the pre-tax 401k as taxable income. However, you do not report excess deferrals to the Roth 401k as taxable income. If possible, depending on the amount contributed to each account, you must allocate the excess deferrals to the pre-tax account.
If you can allocate all the excess deferrals to the pre-tax account, and you amend your return, you are done. You can't use the special procedure to remove excess deferrals after April 15. You simple pay income tax on the withdrawals when you retire, even though the excess was also taxed in 2023. Leave the Roth 401k alone.
If you can't allocate the excess all to the pre-tax account, so you have some excess in the Roth, this creates a bit of a problem. For example, suppose your wife contributed a total of $30,000 to the Roth account and $15,000 to the pre-tax account. You would report $15,000 of additional taxable income. That leaves her with an excess deferral of $7,500 in the Roth account. What that means is that, whenever she withdraws from the Roth 401k, the first $7500 (plus attributable earnings) are taxable. She could withdraw the money now, but probably only from the former employer and not the current employer (because you generally can't withdraw money from the account with a current employer except for a financial hardship as defined by their plan. You can withdraw from a former employer after separation of service.) Or she can wait and withdraw the money later, but she needs to keep track of any excess and any attributable earnings.
