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

macuser_22

Alumni - Champ

@macuser_22

oh, do I still need to do amendment for 2020, the year when I over contributed 401k?

Then I just wait till the retirement age (the earliest 59.5 years old) to withdraw 401k as regular people do (whose 401k always not exceeds the contribution limit), that every dollar will be taxed.

Yes you must amend 2020, if that was the year of the excess, to report the excess as I described in a previous post. After that just forget it - you are done.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**