Excess roth 401k contribution with filing extension

Forum|Forum|1 year ago
May 21, 2024
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I am working on my 2023 taxes and noticed that I over contributed above the roth 401k limit. I was missing a tax form and couldn't file by the deadline, so I submitted an extension.

Because I submitted an extension that gives me until October 15th to file, can I avoid being penalized on my roth 401k excess contributions if I take out the excess by that date?

I use Fidelity. What is the process for having them return the excess contributions for me? And will they automatically issue me a 1099-R for next year's taxes? Again, this is for excess roth 401k contributions.

401K

Best answer by dmertz

"Because I submitted an extension that gives me until October 15th to file, can I avoid being penalized on my roth 401k excess contributions if I take out the excess by that date?"

No. The tax code specifies that deadline to receive the corrective distribution of an excess 401(k) employee contribution is April 15 of the following year, not the due date of your tax return for that year. See IRS IRB 2007-22: https://www.irs.gov/pub/irs-irbs/irb07-22.pdf

dmertzAnswer

Employee

"Because I submitted an extension that gives me until October 15th to file, can I avoid being penalized on my roth 401k excess contributions if I take out the excess by that date?"

thegoodreturnAuthor

Thanks dmertz.

Are there any options for avoiding the penalty such as "moving" or repurposing the contribution for the following year (2024)? Or do I just need to take the 10% penalty and report the 1099-R on my 2024 tax return?

dmertz

Employee

See IRS IRB 2007-22. There is no 10% penalty on excess employee contributions. The "penalty" is that the excess Roth contribution and attributable earnings will be taxable when eventually distributed even though the Roth contribution was not excludible from income, resulting in double taxation of the excess and taxation of the attributable earnings even if the distribution would otherwise be a qualified distribution. The excess and the attributable earnings will be the first amounts distributed when you do take a distribution from the Roth 401(k) and that amount will not be eligible for rollover.