@Balak wrote:
I’m in the same situation. My brokerage refused to process any excess since it’s past April 15. I have over $2200 in excess. Researching the potential tax consequence, it appears there would be a double taxation on the excess. Various articles and resources also talk about a 6% penalty per year being assessed for each year the excess remains in the account. Can someone please clarify this?
Quoting one of the articles from a CPA’s website below-
“The penalty for excess contributions is 6%. If you remove the excess amount prior to the end of the tax year, you will not be assessed a penalty. In other words, there is good news in that you might have a chance at avoiding this 401(k) penalty if you get the excess contribution out of your account before the tax deadline for the year it was contributed.”
It is not clear what type of account you are talking about.
The subject of this thread is an employer 401(k) plan, not a brokerage account. A 401(k) never has a 6% penalty. For a 401(K) the excess is reported on the 1040 line 1 for the year of the excess as I indicated in a previous post. After April 15 of the following year it stays in the account if not removed before that date. When you retire that amount will be taxed again as ordinary income - that is the penalty for not removing before April 15.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
