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Retirement tax questions
@krvenkat wrote:
Its been 2 years now and I just realized this year. Should I leave the Excess $600 401k contributed in 2020 as-is or what are my options ? Is this something I should worry about now ?
In other words, should you cheat on your taxes? We can only tell you what the rules are. We can't make you follow them.
As a point of law, the IRS has 3 years to audit you in most cases, so for a tax return filed on time for 2020 (that is, May 17, 2021), the IRS has until May 17, 2024 to contact you about the deficiency. If they do, the late fees and interest add about 1% per month of the under-stated tax. If you have underreported income of $600, that will result in a tax deficiency of about $132 (for most taxpayers) plus an extra 1% per month from May, 2021 until you actually pay.
As a matter of practicality, most taxpayer are never audited. However, since the excess contributions were reported on your W-2s and the IRS could figure out the deficiency by adding up your W-2s and comparing it to your tax return, it's not really a matter of someone pulling your file from a pile of 50 million tax returns, it's a matter of whether the IRS computers are programmed to detect this type of mistake and generate an automated letter.
It's up to you.