Excess 410(k) contributions – HCE
Hi, I can use for help in this regard. I need some advice on an issue of excess contributions. I contributed the maximum to my employer’s 401(k) during 2010.
In December 2011, I received a letter from the 401(k) administrator Principal stating that the former employer’s 401(k) plan failed its ADP/ACE test limit for tax year 2010 and telling me I had been determined to have contributed $9100 too much and the excess funds cannot be rolled over into another IRA. By then I had left the company (September 2010) and rolled over my 401K to an IRA with Fidelity.
Because the full value of the 401(k) had been rolled over, Principal said they had nothing they could return to me as an excess contribution and I had to contact Fidelity to ensure the ineligible rollover portion is removed from the amount. In January 2012 I contacted Fidelity and informed them about the excess contribution.
In January 2013, Fidelity issued me a tax year 2012 1099-R with the $9220 as a taxable distribution in 2012 (even though I obviously received no such distribution in 2012). I worked with Fidelity to remove the $9220 from the IRA as soon as I knew, but that distribution didn’t happen until March 2012. The 1099-R from Fidelity (2013) was coded P1.
In 2012, Principal also issued 2 1099Rs which I reported in tax year 2011. I’m not sure if I reported the 1099-R received from Fidelity ( with code P-1) on 2012 returns.
In May 2013, IRS sent me a CP2000 determining that I must pay additional tax on the $9220. I now face the possibility of having to pay income tax on the $9220 for tax year 2011. Any thoughts on how to respond to the IRS notice and whether IRS has correctly assessed this tax on $9220. Thank you for your help. Much Appreciated!
Permalink Submitted by Alan - IRA critic on Tue, 2014-05-13 20:40
This is now a real problem because the taxation of the 9220 should have been in 2010 because that is the year the plan distributed the excess in the form of your IRA rollover. And 2010 is now a CLOSED tax year as of last month, so the usual cure will not work correctly. Can you locate the Principal 1099R forms (which you reported in 2011) that revised their original 1099R issued in Jan 2011 for 2010 and indicate the year and coding? The challenge now is getting the 9220 to be taxed only once, not twice. It should have been taxed in 2010, but 2010 is now closed. The IRA distribution should not be taxed because it is the distribution due to incorrect rollover information originally provided by Principal.