TOTAL CONTRIBUTIONS FOR ROTH 401K WAS $10,000 AND TRADITIONAL 401K $15,000 IN 2020
The overcontribution is $5,500. If you pay the 6% tax and just leave the funds in there until retirement then am I correct to assume there won’t be additional tax on the withdrawal because it could come from the excess in the ROTH IRA?
Permalink Submitted by Alan - IRA critic on Thu, 2021-10-14 04:16
If these contributions were made to a single plan, the plan should have stopped contributions at the limit, and the plan also risks disqualification since the excess was not distributed by the 4/15 deadline. There is no annual 6% excise tax due, but removal would be subject to tax and penalty. This also includes the Roth 401k portion of the excess, so each portion would be subject to double taxation once distributed. Roth contribution was taxed upon contribution and would be taxed again upon distribution. The pre tax portion of the excess will be taxed in the year of contribution and again when distributed. There would be no tax when distributed from the Roth IRA, but there would be tax due upon rollover from the Roth 401k to the Roth IRA, at least to the extent of the excess. At least that is what the plans should show on their 1099R forms if they handle it correctly.