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Level 1
posted Oct 16, 2022 5:37:36 AM

How to correct an overcontribution for a solo 401K (by employer, which is me as a self-employed person). I made this mistake two days ago. What are penalities and taxes?

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1 Best answer
Level 15
Oct 16, 2022 10:38:47 AM

The corrective action is to request that the trustee make a corrective distribution of the excess, adjusted for gain or loss, or to pay a 10% excess contribution penalty with Form 5330 (not supported by TurboTax and apply the excess as some or all of the contribution for the following year.  (Note that if contributed in 2022 for 2021, perhaps the contribution can be treated as the permissible amount for 2021 plus some amount for 2022 without treating any of it as excess; check with your 401(k) trustee.)

 

The Fix-it Guide for elective deferrals is not the correct reference since the excess was an excess employer contribution (Section 404(a)(3)(A)), not an excess elective deferral.  The April 15 deadline would not apply.  The deadline to obtain a corrective distribution might be the due date of your tax return (the date you file your tax return on extension or October 17, 2022, whichever is earlier), I'm not sure.

4 Replies
Level 15
Oct 16, 2022 7:16:34 AM
Level 15
Oct 16, 2022 10:38:47 AM

The corrective action is to request that the trustee make a corrective distribution of the excess, adjusted for gain or loss, or to pay a 10% excess contribution penalty with Form 5330 (not supported by TurboTax and apply the excess as some or all of the contribution for the following year.  (Note that if contributed in 2022 for 2021, perhaps the contribution can be treated as the permissible amount for 2021 plus some amount for 2022 without treating any of it as excess; check with your 401(k) trustee.)

 

The Fix-it Guide for elective deferrals is not the correct reference since the excess was an excess employer contribution (Section 404(a)(3)(A)), not an excess elective deferral.  The April 15 deadline would not apply.  The deadline to obtain a corrective distribution might be the due date of your tax return (the date you file your tax return on extension or October 17, 2022, whichever is earlier), I'm not sure.

Level 1
Oct 16, 2022 1:25:30 PM

Thank you so much!  I will contact the trustee as soon as offices open Monday and ask them to make the corrective action.  

Level 1
Oct 16, 2022 1:31:20 PM

Thank you for your response and the links....though I think the suggestion about contacting the trustee to make the corrective action fits my situation as the 'employer' as well as the 'employee'.