401 K Excess Contribution

[arlo]

If I use 5329 to report the excess where do I put the Withhold Tax for Federal Taxes?
Is the 6% tax a penalty? If they made the withdraw before filing date I dont think the 6% applies. Need help

[Koss]

Withholding?

If they withdrew an excess contribution, then the distribution would not be taxable... unless they withdrew it after December 31.

I don't see how this happened. A 401(k) plan is managed by the employer, or by a trustee/administrator on behalf of the employer. Did they somehow allow contributions that were not payroll deductions?? It doesn't make sense.

Did the taxpayer receive a Form 1099-R that shows withholding?

Withholding is generally not reported on Form 5329. It is reported on the second page of Form 1040.

BMK

[arlo]

excess contribution 401K

The excess was issued on 1/31/11 for I supose the year 2010. All I have is the statement
(not a 1099R) showing the excess and the amount refunded. The employee has large amounts ($11,000 to $15,000) or so deducted from her paycheck. It says the adjustment is due to her being a hightly compensated employee. The way I see it is that the excess was deducted from income in 2010 and it would be taxable in 2011.

[New York Enrolled Agent]

The excess was issued on 1/31/11 for I supose the year 2010. All I have is the statement
(not a 1099R) showing the excess and the amount refunded. The employee has large amounts ($11,000 to $15,000) or so deducted from her paycheck. It says the adjustment is due to her being a hightly compensated employee. The way I see it is that the excess was deducted from income in 2010 and it would be taxable in 2011.

There will not be a 1099 until next year. §4979(f)(2) provides that excess contributions and the income earned are taxed in the year of the distribution. There will be no additional excise tax to the taxpayer.

I think Koss may be referring to excess deferrals which are different.

[Gary2]

I don't see how this happened. A 401(k) plan is managed by the employer, or by a trustee/administrator on behalf of the employer. Did they somehow allow contributions that were not payroll deductions?? It doesn't make sense.

If a person holds down two high-paying jobs, they can exceed their $16,500 limit (or whatever it is this year) without either plan manager knowing it.

[BP.]

If a person holds down two high-paying jobs, they can exceed their $16,500 limit (or whatever it is this year) without either plan manager knowing it.

Yes, or even one job where the employee contributes the maximum, and then a small part time job where they've been enrolled in that employer's plan, too. I've had clients with excess contributions under that scenario.

[New York Enrolled Agent]

Yes, or even one job where the employee contributes the maximum, and then a small part time job where they've been enrolled in that employer's plan, too. I've had clients with excess contributions under that scenario.

I agree this can happen in your scenario or G2's scenario but those are excess deferrals. They are treated differently than excess contributions. Excess deferrals are included in the taxpayer's gross income for the taxable year. Any earnings associated with the excess deferrals are reported as income in the year of distribution. See Reg. §1.402(g)-1(e)(8)

[BP.]

I agree this can happen in your scenario or G2's scenario but those are excess deferrals. They are treated differently than excess contributions. Excess deferrals are included in the taxpayer's gross income for the taxable year. Any earnings associated with the excess deferrals are reported as income in the year of distribution. See Reg. §1.402(g)-1(e)(8)

Thx for clarifying!