Can anyone help me with a 401k over contribution issue? I am past the April 15th deadline and my employer isn't helping.

Forum|Forum|2 years ago
April 25, 2023
2 replies
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I had a contribution from my previous employer and my new employer 401k, which resulted in over contributing to my 401k.

I am not getting much clarity at all and have no idea what direction to go. This feels like a nightmare. I contacted HR with my employer and they directed me to call Fidelity and to contact Payroll via online ticket process. I called Fidelity and they told me to reach out to the employer to get a form to fill out a return for excess deferral, which was 2 days before the April 15th date. I took action and sent a form to Payroll (from a request ticket online - no way to call them), as well as filed an extension for my taxes. It's been a week later and Payroll from my employer wrote back finally. They told me they can no longer help me since I am past the deadline and that I would have to contact the IRS. I tried calling the IRS, but their automated telephone service tells me to look at their website which does not help with this issue.

How do I go about getting this corrected properly and completing my taxes? I tried contacting a tax assistant on TurboTax Live and they told me to get my money back from my employer, but I told them what my employer told me and they still insisted. This just makes me more confused.

I am not sure how to move forward with this issue? What are the penalties and what happens to the over contribution? Do I have to withdraw it immediately or how can I resolve this so I can complete my taxes properly? Please help!

Marina25Author

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Opus 17

Employee

Did you request a filing extension before the original April 18 deadline?

The consequence of making excess contributions is that the excess is added back to your taxable income. This should be done automatically by Turbotax, although I believe it may not.

@Hal_Al @dmertz

You can leave the money in the 401(k), but it will be taxed when you withdraw it. Since it is also taxed now, that's double taxation, and most people would want to avoid that by removing the excess (which you have to pay tax on now regardless) and investing it somewhere else.

You only have until April 15 to remove any excess. This deadline is fixed in the law even if the tax deadline is later and even if you get an extension.

You have until the filing deadline to remove the excess. You would contact the plan, not your employer. If you did not get an extension, then the deadline is past and it is too late to do anything (even if you have't filed your return, you are past the deadline). You pay tax now on the excess (because it is not allowed to be contributed tax-free) and you will pay tax again whenever you withdraw the money (usually when you retire). If you did get an extension, you have until October 15 to contact the plan trustee and have the excess removed and paid to you.

Either way, the excess deferred salary must be added back to your taxable income. I have asked a couple other experts who can help you determine if you did that already or if you need to amend.

dmertz

Employee

The deadline to obtain a return of this excess contribution was April 15, not the due date of the tax return. The excess will need to be included in income on your 2022 tax return. The excess contribution does not constitute an addition to after-tax basis in your 401(k), so it will be taxed again when distributed as Opus 17 said; that's effectively the only penalty. There isn't much point in obtaining a distribution of the funds now since these funds will be taxed the same whenever these funds are distributed.

Opus 17

Employee

My question is whether Turbotax will automatically detected the excess contributions and add it to taxable income, or whether the add-back must be performed manually by the taxpayer. I assumed Turbotax would have done this, but someone told me the taxpayer has to do it. That might affect whether @Marina25 needs to amend or not.

@dmertz

@Hal_Al