@paulnelsonee - Earnings in a 401(K) are always taxable when when withdrawn. The $1,000 just becomes part of the before tax contributions (even thought you have paid tax on it once already) so you will pay tax on the same $1,000 again when distributed - that is the penalty for failing to timely removing an excess contribution.
**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.**
