Excess deferred contributions in 403b combined from 2 employers

[Myvill]

Pls help me on what to do. I have 2 employers, one offering TSA and the other one 403b. Thinking that they are 2 separate retirement accounts I contributed to both pre tax. I max my TSA with Employer A and still make contributions to 403b under employer B since 2020; 2021; 2022; 2023.  Employer B processed the 2023 return of excess contributions as I was able to request for it before tax day of 2024. Employers A and B and plan administrators A and B won’t process my excess of contributions for the years 2020;2021 and 2023 as it all had been passed the tax days of those years.  Questions: 

1. I had submitted my ITR for 2023 prior to request of return of excess funds. When can I amend my 2023 ITR? Should i just do it now before April 15 or should  I wait for the 1099R that Plan administrator is saying to be mailed in January 2025? 

2. What do i do with the excess contributions i made for 2020-2022? They won’t allow returning it to me. Am I penalized for 6% excise tax if i decide to keep it in the account? What steps should i do to get this corrected? 

3. I am reading from IRS publication that says : “To the extent that a corrective distribution is not made within the correction period, the excess deferrals may not be distributed until a distribution is otherwise permissible under the terms of the plan, or the distribution is necessary to avoid plan disqualification under IRC Section 401(a)(30). “   What does plan disqualification means?  How does this affect me? 

I will appreciate your honest responses. 

[Myvill]

@DanaB27  hi, sorry if i have to tag you. I need help with my situation below. thank you in advance. 

Excess deferred contributions in 403b combined from 2 employers

Pls help me on what to do. I have 2 employers, one offering TSA and the other one 403b. Thinking that they are 2 separate retirement accounts I contributed to both pre tax. I maxed my TSA with Employer A and still make contributions to 403b under employer B since 2020; 2021; 2022; 2023.  Employer B processed the 2023 return of excess contributions as I was able to request for it before tax day of 2024. Employers A and B and plan administrators A and B won’t process my excess of contributions for the years 2020;2021 and 2023 as it all had been passed the tax days of those years.  Questions: 

1. I had submitted my ITR for 2023 prior to request of return of excess funds. When can I amend my 2023 ITR? Should i just do it now before April 15 or should  I wait for the 1099R that Plan administrator is saying to be mailed in January 2025? 

2. What do i do with the excess contributions i made for 2020-2022? They won’t allow returning it to me. Am I penalized for 6% excise tax if i decide to keep it in the account? What steps should i do to get this corrected? 

3. I am reading from IRS publication that says : “To the extent that a corrective distribution is not made within the correction period, the excess deferrals may not be distributed until a distribution is otherwise permissible under the terms of the plan, or the distribution is necessary to avoid plan disqualification under IRC Section 401(a)(30). “   What does plan disqualification means?  How does this affect me? 

I will appreciate your honest responses. 

[DanaB27 · Accepted solution]

You must include the excess deferral in your wages in the year the excess deferral happened. 

Please follow the steps below:

1. Login to your TurboTax Account 
2. Click "Wages & Income" (under Federal) on the left side of your screen
3. Scroll  down to "Less Common Income" and click "Show More"
4. Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
5. Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
6. On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
7. Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
8. On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
9. On the "Any Other Earned Income" screen enter "2023 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

If you receive the distribution of the excess deferral and earnings by April 15th then please note for the Tax Year 2024 tax filing due April 15, 2025: 

2024 Forms 1099-R will be issued reporting the excess.

• Form 1099-R with Code P in box 7 can be ignored if you reported the excess as described above in 2023. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2024.

You will have to amend your 2020, 2021, and 2022 returns to include the excess deferral with the above steps. Please see How do I amend my federal tax return for a prior year?

No, there isn't a 6% penalty for excess deferrals, but if you do not take out the excess amount by April 15th, then you are taxed twice on the excess deferral left in the plan.  This happens once when you contribute it (with the steps above) and again when you receive it as a distribution. You can't include the excess amount in the cost of the contract even though you included it in your income.

It means if the distribution is necessary they will distribute it but it seems this doesn't apply in your case since they won't process the excess deferral  for 2020, 2021 and 2022.

[Myvill]

So this means, I will amend my ITR from previous years of excess deferred contributions and just leave the money in the plan until I am of the right age ( 59 1/2) for distribution and will get taxed again.  Thank you very much @DanaB27 . You and this forum have been very helpful.