Excess Salary Deferral

[sarkalgud]

My wife switched jobs last year and overpaid her salary deferral into her Roth 401K. I will not be able to get this removed by April 18th. Should I file for an extension now or go ahead and submit our taxes and do an amendment once I get the 1099R? Thanks

[DanaB27 · Accepted solution]

Please be aware, if you do not take out the excess amount by April 15th (this is separate from the due date), then you are taxed twice on the excess deferral left in the plan.  This happens once when you contribute it 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.

Excess deferral to Roth 401(k) won't be added to your wages because it was already taxed.

You might want to check with the plan if you can leave the excess in the plan since you missed the deadline to withdraw the excess deferral. After April 15th this will be a regular taxable distribution and subject to the 10% early withdrawal penalty (if under 59 1/2). If the plan allows it you can wait until you are 59 1/2 to withdraw it and avoid the 10% penalty.

Please see Pub 525 for additional information.

@sarkalgud

[sarkalgud]

Thank you very much for your quick reply, Dana!