I worked for two employers in 2016. During the year, I contributed $13,000 in Roth deferrals to a 403(b) plan at the first employer (code BB on my 2016 W-2 from the first employer). Then, after moving to the second employer, I contributed $6,000 in Roth deferrals to a 401(k) plan at the second employer (code AA on my 2016 W-2 from the second employer).
In total, that means I contributed $19,000 in elective deferrals to defined contribution plans in 2016. The maximum amount allowed for elective deferrals to defined contribution plans in 2016 was $18,000. Therefore, I made $1,000 of excess deferrals in 2016. Because I didn't notice this promptly, I wasn't able to resolve it before the tax deadline in April 2017, so the excess deferrals were not refunded to me.
Questions:
1) Which plan now contains excess deferrals? Is it the first employer's 403(b), or the second employer's 401(k)? Can I choose to designate one of the two plans to be the one containing the excess deferrals?
2) Now, five years later, the second employer's 401(k) contains both Roth and traditional sub-accounts. (It also has an after-tax non-Roth sub-account and a Roth conversions sub-account, actually.) If I am forced to view the second employer's 401(k) as the plan that contains the excess deferrals from 2016, then which sub-account are the excess deferrals considered to be in now?
In the following questions I'll assume to the contrary that I am able to designate the first employer's 403(b) as the one containing the excess deferrals; this is more convenient since it contains 100% Roth funds and I no longer work at that employer so the plan is currently static.
3) Can I remedy the excess deferrals situation by taking a distribution from the first employer's 403(b)? (I think the answer is yes, though I'll have to pay income tax on the distribution as well as an early distribution penalty; but no need for back taxes on the original deferral, since I only made Roth contributions to both plans in 2016.)
4) On the date of the last contribution I ever made to the 403(b), $1,000 (the amount of the excess deferrals for 2016) was 6.14% of the total value of the 403(b). That last contribution was larger than $1,000, so I could argue that that one contribution was solely responsible for the excess deferral, and thus that on that date, the excess deferrals in the plan totalled exactly 6.14% of the plan's value (since they had just been contributed and had no earnings yet). Is it then accurate to say that the correct amount to distribute from the 403(b) in order to fully remedy the excess deferrals situation is 6.14% of the current value of the 403(b), whatever that may be? If not, how can I compute the amount that needs to be distributed?
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Which plan does not matter. It is too late to take any distribution. The money just stays in the plan, but you do need to amend 2016 and add the excess to your tax return as wages since you did not pay the tax on that income. When you finally take distributions (probably after retirement) that money will be taxed again. That double tax is the penalty for not removing it by the April 15, 2017 date.
TurboTax no longer has 2016 software available for amending,
For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf
Thank you for responding, but I think you missed some of the details of my question.
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're taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution (unless the excess deferral was a designated Roth contribution).
(iii) Distributions of excess deferrals after correction period. If excess deferrals (and income) for a taxable year are not distributed within the period described in paragraphs (e)(2) and (e)(3) of this section, they may only be distributed when permitted under section 401(k)(2)(B). These amounts are includible in gross income when distributed, and are treated for purposes of the distribution rules otherwise applicable to the plan as elective deferrals (and income) that were excludable from the individual's gross income under section 402(g). Thus, any amount includible in gross income for any taxable year under this section that is not distributed by April 15 of the following taxable year is not treated as an investment in the contract for purposes of section 72 and is includible in the employee's gross income when distributed from the plan. Excess deferrals that are distributed under this paragraph (e)(8)(iii) are treated as employer contributions for purposes of section 415 when they are contributed to the plan.
(iv) Distributions of excess deferrals from a designated Roth account. The rules of paragraph (e)(8)(iii) of this section generally apply to distributions of excess deferrals that are designated Roth contributions and the attributable income. Thus, if a designated Roth account described in section 402A includes any excess deferrals, any distribution of amounts attributable to those excess deferrals are includible in gross income (without adjustment for any return of investment in the contract under section 72(e)(8)). In addition, such distributions cannot be qualified distributions described in section 402A(d)(2) and are not eligible rollover distributions within the meaning of section 402(c)(4). For this purpose, if a designated Roth account includes any excess deferrals, any distributions from the account are treated as attributable to those excess deferrals until the total amount distributed from the designated Roth account equals the total of such deferrals and attributable income.
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