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Excess 401k contribution in 2017. But plan administrators don't let me withdraw!
Excess 401k contribution in 2017. I changed job in 2017 and after I inputted both W-2, I exceeded the 18k. I notified both plan administration and both don't let me withdraw the excess contribution. What should I do?
I also read the following from IRA, but don't get what that means:
"Excess not distributed. If you don't take
out the excess amount, you can't include it in
the cost of the contract even though you included
it in your income. Therefore, you are taxed
twice on the excess deferral left in the
plan—once when you contribute it, and again
when you receive it as a distribution. " - https://www.irs.gov/pub/irs-pdf/p525.pdf (Page 10)
If they allowed me to withdraw, I would follow the following link to fix the issue: https://ttlc.intuit.com/questions/3877165-excess-401k-contribution-in-2016-should-i-report-it-using-...
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Retirement tax questions
Basically, the quote you included form IRS Publication 525 is stating that if your excess 401(k) contribution is not taken out by the due date of your return, you will end up being taxed twice on the amount because they are not allowing you any type of basis when you are taxed the first time. So you are taxed on the excess contribution now AND when you take the money out in the future.
I would highly recommend talking to the plan administrators again and explaining the situation so that you can withdraw that money before April 17, 2018 and avoid the double taxation.
If you are able to withdraw the excess contribution in time, you can report the excess contribution on line 7 of your 2017 Tax Return without a Form 1099-R by following these steps:
- Click on the "Federal Taxes" Tab
- Click on the "Wages & Income" Tab
- Click on "I'll choose what I work on"
- Scroll down to "Less Common Income"
- Select "Miscellaneous Income" and click Start or Update
- Select "Other income not already reported on a Form W-2 or Form 1099" and click on Start
- Answer the Question "Did you receive any other wages? Yes
- Click through the questions until you get to "Any Other Earned Income"
- Answer Yes to "Did you earn any other wages?
- Indicate "Other" as Source of Other Earned Income and click Continue
- For the description enter "2017 Excess 401K Deferrals" and click on Done
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Someday you will make distributions from your 401(k)s. As TurboTaxRachelW indicated, the excess amount on which you paid taxes in 2017 is not treated as after-tax basis in your 401(k)s, so you simply pay taxes again on the same money when eventually distributed as part of a regular distribution.
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"For any distributions, attributable to elective deferrals designated as Roth Contributions, all distributions will be reported as taxable in the year distributed. Designated Roth contributions will have already been included in income in the year of deferral."
Which means that when distributed the amount of excess plus and earnings will be included in your income as taxable income.
The 10% is not an alternative. The 10% is an ADDITIONAL early distribution penalty in addition to the normal tax that applies if you are under age 59 1/2 at the time of the distribution for late distributions of excess contributions not withdrawn by the due date of the tax return.
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Had the distribution of the 2017 excess been done by April 15, 2018, none of the distribution, including the attributable earnings, would be subject to an early-distribution penalty. An early-distribution penalty on the earnings distributed with a return of contribution by the due date of the tax return only happens with a return of contribution from an IRA.
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