I changed jobs in 2020 and ended up over contributing to 401k (total from the 2 employers). I contacted my current employer and the plan administrator (Wells Fargo) and both stated that it is past the deadline of April 15th to get an "excess deferrals" from my plan. I live in Texas and with combination of Covid and winter storm, actual deadline to file is June 17th.
Filing now and finding out about this excess but how do I correct for this excess contribution? Most sites and forms talk about correcting prior to April 15th...not after.
Thanks in advance.
Correct, if an individual defers more than this limit for 2020, the excess deferral amount plus earnings must be distributed by April 15, 2021. The date to remove excess salary deferrals has not been extended (IRS). Excess salary deferrals not withdrawn by April 15 are taxable in 2020 and again when withdrawn. Please see 2020 Publication 525 Page 11 for additional information.
You will have to include the excess deferral on your 2020 tax return by following the steps below. Then when you withdraw the amount at a later time it will be taxable again.
Thank you for your reply and I understand about having to remove the excess amount prior to April 15th but it's May 14th, discovered on May 13th. I can't withdraw the money , both my company and the 401k provider stated that I can't remove the excess amount.
For your instructions, are you saying I still have to do this even though I was not able to remove the funds?
Yes, excess salary deferrals not withdrawn by April 15 are taxable in 2020 and again when withdrawn. Therefore, you will have to include them on your 2020 tax return as mentioned above and when you take the distribution this amount will still be taxable income. Therefore, you will be taxed twice on the amount since you unfortunately missed the deadline.
So can I leave it in my retirement plan and then just pay the tax at the lower rate when I'm retired vs now when I am fully employed?