Overcontributed to roth 401k in 2022

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I had a change of job mid-year 2022 and filed my 2022 tax return in March 2023. I only realized now in Sept 2023 that my combined roth 401k contribution for year 2022 was over the $20.5k maximum. What should I do now at this point?

[dmertz · Accepted solution]

Because the April 1, 2023 deadline has passed for notifying the employer to be able to obtain a corrective distribution, the excess amount and any earnings attributable to the excess amount are deemed to be the first amounts distributed and are taxable when you later take any distributions from the Roth 401(k).  These amounts are not eligible for rollover.  To accomplish this, the amount of the excess and the attributable earnings must be tracked separately from the other amounts in the Roth 401(k), so it probably means that the plan needs to track these amounts.  See "Designated Roth Contributions as Excess Deferrals" in Treasury Decision 9324 Internal Revenue Service 2007-22 I.R.B. 1302.  Also see CFR 1.402a-1 Q&A-2(c) and Q&A-3:

https://www.law.cornell.edu/cfr/text/26/1.402A-1

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Thanks dmertz this is helpful!

1. I will not need to amend my 2022 tax filing because these are Roth contribution, is that correct?
2. Tactically, should I get in touch and withdraw asap the excess amount and the corresponding earnings to date and just take the 10% penalty headon. Or is it better I leave it in the plan?

[dmertz · Accepted solution]

1.  Correct.  The fact that you made an excess Roth 401(k) contribution for 2022 does not affect your 2022 tax return because Roth 401(k) contributions are not excluded from your taxable income.

2.  You might not be able to take the distribution until you separate from service or reach age 59½ because employee contributions are generally not permitted to be distributed as a regular distribution while still employed there and you are under age 59½.