Excess Contribution to Individual 401k
Client made an excess contribution to their individual 401k for 2013 and missed the 4/15/2014 to withdraw that excess amount. The client fixed this on their tax return (only deducted the allowed amount) but the excess is still sitting in the 401k. The custodian says they can only make a distribution for a qualifying event. Is the client able to leave the excess money in the account or will that disqualify the 401k? Is there any penalty to leaving the excess in the account?
Permalink Submitted by Alan - IRA critic on Fri, 2014-12-05 23:32
Was it an excess deferral (employee contribution) or excess contribution (employer profit sharing contribution)?
Permalink Submitted by Jeff Rosengarten on Sat, 2014-12-06 18:18
Excess deferral. All $17,500 of the contribution was coded by the custodian as employee deferral. The client earned $10,656 and 1/2 SE tax was $753. I believe some of the $17,500 can be coded as employer profit sharing contribution with the custodian (and rolled over to 2014) but that still leaves some excess deferral in the plan.
Permalink Submitted by Alan - IRA critic on Mon, 2014-12-08 19:46
Under EPCRS, the error appears to be the use of an incorrect definition of compensation under the plan rather than an excess deferral, since the 402g limit was not exceeded.