Roth 401K Excess contribution

[DoctorJJ]

I made an excess contribution to my Roth 401K for 2023 (due to multiple W2s). I requested the return of the excess (ROE) contribution from my brokerage account holder last year, 2024, but they claimed that I requested the return of excess too late, after April 14, 2024, and they could not return the excess to me. I contacted them many times throughout 2024 about this, with no success. They advised me to contact a CPA. I contacted Turbo Tax Expert  and other tax companies that mentioned that they have nothing to do with this and that this should be between me and my brokerage firm, which makes sense to me. Meanwhile, the excess continues to be at the brokerage firm, accumulating penalties and interest. Any suggestion on how to resolve this?

Note: I can not transfer my 2023 excess to 2024 since my 2024 Roth is maxed out.

[DanaB27]

There is nothing you can do to resolve it since you didn't remove the excess by April 15th, 2024.

You do not pay penalties for an excess to a 401k the 6% penalty only applies to IRAs. 

Your "penalty" is that you will be taxed twice on the excess left in the plan since you did not take out the excess amount by April 15th, 2024. 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.

The first amounts distributed from the designated Roth account are treated as distributions of excess deferrals and earnings until the full amount of those excess deferrals (and attributable earnings) are distributed. These distributions will be taxable.

[dmertz]

Having an excess Roth 401(k) contribution that is unable to be timely corrected can create a real mess with regard to basis tracking and determining the taxable amounts of distributions.  A substantial complication is that, in such a case, the employer might not track this excess and attributable earnings.  To comply with the requirement that the distribution of the excess and attributable earnings is taxable you might need to do the tracking yourself.  If so, any Form 1099-R that reports a distribution from one of these Roth 401(k) accounts will not show the correct taxable amount and the employer will not be able to correctly track your contribution basis.

You might consider finding out if the plan that you notified about the excess will do the necessary tracking so that they can report the correct taxable amount and track the basis properly when you take a distribution of this excess and attributable earnings after becoming eligible to take distributions from this Roth 401(k).

[DoctorJJ]

Do I need a CPA to withdraw the excess as the Plan Administrator mentioned?

[dmertz]

The excess can't be taken out until you are eligible to receive an ordinary distribution.  I think the suggestion to contact a CPA was just to have someone explain the consequences of having an excess contribution that was not able to be corrected timely.  Actually, I doubt that many CPAs would know these consequences without  specifically researching them.  They would need to know the specific IRS guidance that the IRS has provided for excess Roth 401(k) contributions.  This guidance is in  Treasury Decision 9324, IRS, 2007-22 I.R.B. 1302.

[DoctorJJ]

Thanks very much for your help.