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Level 1

I accidentally over contributed to my 401K - what do I need to do?

I accidentally over contributed to my 401K and I called Vanguard to pull the extra $ out and they said the deadline was April 15th and I'm too late to do this. Is this accurate and what should I do in this case? Should I still request a withdraw for the amount I over contributed by? What happens in this case? Also, should I still pre-preemptively report this on my tax return for 2017? What else do I need to do or know in this situation? 

1 Reply
Level 20

I accidentally over contributed to my 401K - what do I need to do?

The date is April 18, not 15 and it still must be removed plus any earnings.   The excess is reported in the year of the excess (2017) and the earning in the year of the return (2018).   You can report the excess whether is is removed or not on your 2017 return as shown below.   If not removed then you will pay tax twice, once now and again when you take distributions since the excess will not become an after-tax basis in the account (see the pub).

For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf

Partial quote:

"Excess distributed to you. If you take out
the excess after the year of the deferral and you
receive the corrective distribution by April 18 of
the following year, don't include it in income
again in the year you receive it. If you receive it
later, you must include it in income in both the
year of the deferral and the year you receive it.
Any income on the excess deferral taken out is
taxable in the tax year in which you take it out. If
you take out part of the excess deferral and the
income on it, allocate the distribution proportionately
between the excess deferral and the
income."

You do not need to wait for a 1099-R next year that will probably require you to amend your 2017 tax return to report the excess on line 7 of your tax return - it can be entered this way and then ignore the 2018 1099-R with a code P in box 7 when it comes.

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) ->
Source of income (other) ->
Any other income - enter the amount of the excess deferral and an explanation.

[Note: If there were any earning that were returned in 2018 then the earnings will be reported on a separate 2018 1099-R with a code 8 that goes on your 2018 tax return - do not enter the earnings here.]

This will add the returned excess to your 2017 wages on line 7 exactly the same way that the 1099-R would. The only information that is sent to the IRS is the line 7 amount.

For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf