Excess 401k contribution in 2017. But plan administrators don't let me withdraw!

[macuser_22]

@2manydogs - The same way as above if you missed the date to have the excess removed or if you had two different employers then  neither is *required* to return it.  It just stays in the account and will be taxed again when finally distributed - in the mean time it can produce earnings in the account.

For information see IRS Pub 525 page 10 excess not removed.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p525.pdf">https://www.irs.gov/pub/irs-pdf/p525.pdf</a>

[2manydogs]

Okay thank you so much!

[master_d]

I have this issue for 2020 taxes where I have excess 401k contributions across 2 different 401k providers and both providers refuse to distribute the excess deferrals saying that excess deferral requests must be made before 4/15 even though the tax deadline was extended to 5/17 for 2020.  A turbotax advisor said that I will be taxed 6% on the excess 401k contributions until I'm able to get a disbursement of the excess amount.  Is that true?  If so that's horrifying and would potentially cause me to pay more in taxes than I ever contributed in the first place.

[macuser_22]

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@master_d wrote:

I have this issue for 2020 taxes where I have excess 401k contributions across 2 different 401k providers and both providers refuse to distribute the excess deferrals saying that excess deferral requests must be made before 4/15 even though the tax deadline was extended to 5/17 for 2020.  A turbotax advisor said that I will be taxed 6% on the excess 401k contributions until I'm able to get a disbursement of the excess amount.  Is that true?  If so that's horrifying and would potentially cause me to pay more in taxes than I ever contributed in the first place.

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You were given incorrect information.    The 6% penalty applies to IRA's, not 401(k)'s.

Although this thread is several  years old the tax law has not changed.  You must still report  the excess on your 2020 tax return as taxable wages,  and has been said before in this thread, when you retire and take distribution it will be taxes again as ordinary income.

You do not pay more in tax than the contribution.  Since the contribution was not included in your taxable wages you must include it now.   That will increase your tax somewhat.

Excess 401(k) deferrals should be reported in:
(There are several screens to click through to get to the right place)

Miscellionious Income ->
Other Income not reported on a W-2 ->
Other wages (yes) ->
House Hold employee (Continue) ->
Sick Pay (Continue) ->
Other earned income (yes) (Includes excess salary deferrals)->
Source of income (other) ->
Any other income - enter the amount of the excess deferral and an explanation.

This will add the returned excess to your 2020 wages on line 1 on the 1040 form.

[master_d]

Cool thank you for the information.  I actually don't mind paying taxes twice for this since the excess contribution resulted in the max company match and I couldn't have gotten there without an excess deferral

[macuser_22]

This rule can work two ways.    Sometimes it is better to not remove the excess because removing it means the earnings must also  be removed and are taxable in the year removed.  The earnings (and future earnings) might be more than the tax.  It can be an advantage to leave it all in the account.

[Ryan_us]

I have same issue for my 2021 return. Basically both plan administrators don't let me withdraw. Since the excess is small it is OK for me to  be taxed twice on the amount. Now my question is how to report the excess as taxable income tax for my 2021 return?

It seems that the instruction Rachel_W mentioned is for the case that "you are able to withdraw the excess contribution in time", because the quote is "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: ".

How to report 2021 tax using Turbo tax if the plan administrators don't let me withdraw?

Thanks!

[macuser_22]

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@Ryan_us wrote:

I have same issue for my 2021 return. Basically both plan administrators don't let me withdraw. Since the excess is small it is OK for me to  be taxed twice on the amount. Now my question is how to report the excess as taxable income tax for my 2021 return?

It seems that the instruction Rachel_W mentioned is for the case that "you are able to withdraw the excess contribution in time", because the quote is "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: ".

How to report 2021 tax using Turbo tax if the plan administrators don't let me withdraw?

Thanks!

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If an excess and only one employer then that employer is required by law to return it, but if two (or more) employers and neither one created the excess with what they reported while you worked for that employer then neither one is required to return the excess although most will.   If they don't then you are stuck with it which is not necessary bad since the excess remaining in the account can continue to grow.

Excess 401(k) deferrals should be reported in:
(There are several screens to click through to get to the right place)

Miscellionious Income ->
Other Income not reported on a W-2 ->
Other wages (yes) ->
House Hold employee (Continue) ->
Sick Pay (Continue) ->
Other earned income (yes) (Includes excess salary deferrals)->
Source of income (other) ->
Any other income - enter the amount of the excess deferral and an explanation.

This will add the taxable excess to your 2020 wages on line 1 as required.

[macuser_22]

---

@Ryan_us wrote:

I have same issue for my 2021 return. Basically both plan administrators don't let me withdraw. Since the excess is small it is OK for me to  be taxed twice on the amount. Now my question is how to report the excess as taxable income tax for my 2021 return?

It seems that the instruction Rachel_W mentioned is for the case that "you are able to withdraw the excess contribution in time", because the quote is "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: ".

How to report 2021 tax using Turbo tax if the plan administrators don't let me withdraw?

Thanks!

---

If an excess and only one employer then that employer is required by law to return it, but if two (or more) employers and neither one created the excess with what they reported while you worked for that employer then neither one is required to return the excess although most will.   If they don't then you are stuck with it which is not necessary bad since the excess remaining in the account can c

Excess 401(k) deferrals should be reported in:
(There are several screens to click through to get to the right place)

Miscellionious Income ->
Other Income not reported on a W-2 ->
Other wages (yes) ->
House Hold employee (Continue) ->
Sick Pay (Continue) ->
Other earned income (yes) (Includes excess salary deferrals)->
Source of income (other) ->
Any other income - enter the amount of the excess deferral and an explanation.

This will add the taxable excess to your 2020 wages on line 1 as required.

[L19C]

Similar situation here. I changed a job in 2021 and ended up excess Roth 401k contributions. Both providers refused to distribute the excess deferrals since it was passed 4/15/2022 when I requested.  I understand from this discussion thread that I can 1) leave the excess there and pay tax when I withdraw after I retirement. 2) Take an early withdraw from the first company (since I no longer work there anymore) and pay 10% early withdraw penalty in 2022 and done with it. But what should I do for 2021 tax? There is no Miscellaneous Income to report since it was Roth 401K. Do I need to report the (unrealized) gain or loses, but where can I get that number from? 

[dmertz]

In a case like this, the distribution of the excess from the Roth 401(k) is treated just like any other distribution from the Roth 401(k) except that it is taxable because an excess contribution to a Roth 401(k) does not add to contribution basis.  Further, the first amounts distributed from the Roth 401(k) containing the excess contribution consist of the excess and it's attributable gains until the entire excess and attributable gains have been distributed.  Since the distribution of the excess and attributable earnings is taxable, it will be subject to a 10% early-distribution penalty  if the distribution occurs before you reach age 59½.  Note that you are generally not permitted to take this distribution until you have either reached age 59½ or you separate from service with the company providing the plan that contains the excess contribution.

[L19C]

Thank you @dmertz! That makes sense. Anything special I should do now for 2021 tax? I filed an extension because of this.  Will need to finalize it and file before Oct 15.

[dmertz]

This does not affect your 2021 tax return.

[ag49]

Hello all,

I had two employers during the 2022 tax year (A & B), and my second employer (B) has a generous 401K match. I wanted to maximize my contribution at B and withdraw from my first employer, however  the first employer is refusing. I spoke with the first employer's 401 administrator, and the administrator is speaking to them to see if they will change their mind. 

Based on this thread, it looks like neither employer is required to allow the withdrawal legally as no employer has individually permitted the excess. Is that understanding correct?

Assuming this is the case, is it worth paying the extra fees and double tax for the excess contribution for B? Employer B has matched 50% of the contribution.

[DianeW777]

This means you will pay tax on the excess deferral now and again when you take it out at retirement.  Only you can determine if you will earn enough to cover your tax, both with your employer match and earnings, in the long haul.

• A participant who fails to receive a distribution of the excess deferrals does not receive basis in his pre-tax deferral account equal to the amount of excess deferrals. See IRC Section 402(g)(6).
• Snap-Shot - Consequences to a Participant w/Excess Deferrals

@ag49