Over Contribution to 401k

Forum|Forum|4 years ago
March 31, 2022
1 reply
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Hello,

Do to switching jobs i ended up overcontributing to my 401k by about $150 dollars above the IRS limit. I talked to my plan administrator they will not issue a refund after March 1st.

What is the correct way to address this on my tax return?

Best answer by macuser_22

@kberry7211 wrote:

March 1st of this year, so it has already passed.

So i overcontributed in 2021, cant get a a refund on the excess deferral, and am not sure what to do about it on my 2021 tax return.

Thanks

The tax law says it must be refunded before April 15, of the year following the excess, not March 1.

However, for a job switch involving two employers then neither employer is required to return the excess but most will.

If they do not then the excess can remain in the plan but it still taxable income to you in 2021 and will be taxed again when you finally remove it (after retirement). That double tax is the penalty for not removing it. In the mean time the excess will continue to grow in the account so that might actually turn out to be an advantage.

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

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

This will add the excess to your 2021 wages on line 1 of the 1040 form.

DaveF1006

Level 15

To clarify, March 1 of this year or next? March 1 of this year has already passed.

@kberry7211

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kberry7211Author

Level 2

March 1st of this year, so it has already passed.

So i overcontributed in 2021, cant get a a refund on the excess deferral, and am not sure what to do about it on my 2021 tax return.

Thanks

angel888

Level 3

@kberry7211 wrote:

March 1st of this year, so it has already passed.

So i overcontributed in 2021, cant get a a refund on the excess deferral, and am not sure what to do about it on my 2021 tax return.

Thanks

The tax law says it must be refunded before April 15, of the year following the excess, not March 1.

However, for a job switch involving two employers then neither employer is required to return the excess but most will.

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

Excess 401(k) deferrals should be reported in:
(There are several screens to click through to get to the right place)

This will add the excess to your 2021 wages on line 1 of the 1040 form.

@macuser_22 @kberry7211

Tax deadline (normally is April 15) is different from withdrawing the over contributed 401k (March 1st). I checked a few times last year 2021 since I had the same situation (2 jobs, over contribution in 2020). The 1st person I got from Fidelity told me to do it by tax deadline. When I did it before the tax deadline but after March 1st, another 2 people in Fidelity told me that I missed the deadline.

Fidelity kept telling me different things, so I am bounced in between my 2020 employer and Fidelity. Fidelity told me that only employer can take out my overcontributed money, but then my employer told me only Fidelity can do so. So now in 2022 after 2021 tax deadline, I still couldn't do anything nor know what to do.

What would be happened if I don't withdraw the over contributions?