Excess designated Roth contributions are indeed taxed twice if not timely corrected. While the excess Roth 401(k) or Roth 403(b) contribution does not get taxed on the tax return for the year of the contribution since they are after-tax contributions, if not corrected by April 15 of the following year the distribution from Roth of the excess and the attributable earnings are taxable no matter when they are later distributed, subject to the normal limitations on distribution of elective deferrals, despite the fact that the distribution is from a Roth account.
CFR 1.402(g)-1(e)(8)(iv) regarding distributions after the correction period:
(iv) Distributions of excess deferrals from a designated Roth account. The rules of paragraph (e)(8)(iii) of this section generally apply to distributions of excess deferrals that are designated Roth contributions and the attributable income. Thus, if a designated Roth account described in section 402A includes any excess deferrals, any distribution of amounts attributable to those excess deferrals are includible in gross income (without adjustment for any return of investment in the contract under section 72(e)(8)). In addition, such distributions cannot be qualified distributions described in section 402A(d)(2) and are not eligible rollover distributions within the meaning of section 402(c)(4). For this purpose, if a designated Roth account includes any excess deferrals, any distributions from the account are treated as attributable to those excess deferrals until the total amount distributed from the designated Roth account equals the total of such deferrals and attributable income.
The problem with enforcement is that the plan might not know that there is any excess contribution subject to such taxation. Even though the IRS receives information sufficient information to know that an excess contribution has been made, it's likely that the fact that the distribution is taxable will need to be self-reported.
