401K Excess Salary Deferral (for calendar year 2018) - Over contributed to two (2) separate 401K plans for two (2) separate companies that I currently work for. How to ask for excess salary deferral back AFTER April 15th?

[Matthew4]

Hello,

I am in a situation where I have over contributed to the 401K limit for 2018 ($18,500) between two (2) separate 401K plans for two (2) separate companies that I currently work for (and have been working for each for the past 5 years). I asked one of my company's 401K Plan Administrator to remove excess salary deferral amount of $500, in which the Plan Administrator responded with , "Account has completed testing and compliance for the year. Correction can not be done on our side." When I asked my other company's 401K Plan Administrator I get the same response. Both Plan Administrators from each company is looking at their information and saying that they are "In compliance" and that the excess salary deferral can not be taken out, because I did not ask them BEFORE April 15th. How do I go about getting the excess salary deferral amount of $500 (to put me under the $18,500 limit for 2018) from one of my two current 401K Plan Administrators? This way I will get double taxed on only when the $500 was over the limit (2018) and removed (hopefully 2019). I am not trying to get double taxed (2018 which already occured) in 40 years when I retire and get taxed on the earnings of the $500 stemming from 2018. 

Thank you very much for your time and assistance.

- Matthew4 

[dmertz]

There is no point in requesting a distribution of the excess now.  There is no avoiding double taxation of the excess contribution under these circumstances.  The excess amount of elective deferrals for 2018 is includible as income on your 2018 tax return and the same money must be taxed again when eventually distributed because it was not distributed by April 15, 2019.  That's the penalty for not making a timely correction.

Only the excess required to be included on your 2018 as income gets double taxed (as a result of it being included in 2018 income).  Earnings on the excess will not get double taxed.  Any distribution from the account in the future just gets taxed as ordinary income.

[macuser_22]

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@Matthew4 wrote:

Hello,

"Account has completed testing and compliance for the year. Correction can not be done on our side." When I asked my other company's 401K Plan Administrator I get the same response.

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That is often the case with two or more employers, no single employer withheld too much.  Also, in cases like this a plan administrator that did not over withhold,  can and often does, charge an administrative fee to make such a return when they are not at fault - if they will agree to  return it at all.  The fee is often several times what any future tax would be.

[Matthew4]

Thank you for your response, greatly appreciated. One more follow up question I have.

Do I need take out the $500 I over contributed in 2018 so I do not get in trouble with the IRS, or will the only penalty be that I will be taxed twice? I just want to make sure that my earnings in the next 40 years on the $500 are not taxed more than the standard tax when 401K accounts is distributed during time of retirement.

Thank you, 

- Matthew4