401k rollover included excess contribution
Client rolled over 401k into IRA. One year after, administrator informed client that the rollover included $9,000 of excess contribution. solution?
Client rolled over 401k into IRA. One year after, administrator informed client that the rollover included $9,000 of excess contribution. solution?
Permalink Submitted by Alan Spross on Tue, 2010-06-01 00:04
Client will get a 1099R showing the excess contribution and allocated earnings at the time of the IRA rollover, and that figure will have to be included in income on line 7 of Form 1040. There is no early withdrawal penalty for this portion.
As for the IRA rollover, the amount referenced above is an excess contribution to the IRA because it was not eligible for rollover. It will have to be distributed from the IRA as an excess regular contribution with the allocated IRA earnings after the rollover. Since the excess contribution itself will be taxable on line 7, only the earnings on that amount in the IRA will be taxable on line 15 of Form 1040 and the 10% penalty will apply to the IRA earnings unless client is over 59.5.