401k Employer excess passed 1 year of contribution

Submitted by Kevin O'Hearn on Fri, 2023-09-01 17:39

Hello,

It was realized by a CPA that an Employer over-contributed in 2020 and 2021 to a client’s Individual 401(k). The client was working on the distribution of excess contributions with an ERISA reason the client wanted to select “Nondeductible contributions.” Office/client was informed that removal of an excess employer contribution via the ERISA reason nondeductible contribution would have to have been processed within one year after the determination was made by the IRS that the contribution was not deductible.

What would be the next course of action to advise an office working with a client? My thoughts are to either distribute the excess amount or keep the excess amount in the account for now until they speak to EPCRS.



Submitted by Alan - IRA critic on Fri, 2023-09-01 18:14

Is this a solo 401k administered by the employee/employer, or is this just a participant and not the employer? And the excess was the employer contribution, and not the employee elective deferrals?

Submitted by Kevin O'Hearn on Fri, 2023-09-01 19:07

Plan admin and plan participant are one and the same. The excess was the employer’s contribution

Submitted by Alan - IRA critic on Fri, 2023-09-01 20:17

  • The following article generally describes this situation. Note that Form 5330 (10% penalty) must be filed for each year in which non deductible employer contributions were accumulated, while these contributions stay in the plan until they can be absorbed by a following year’s allowed employer contribution. Employer should stop making these contributions until the plan can absorb prior year non deductible contributions. If these ND contributions were deducted in prior years, those tax returns must be amended to reflect the additional income.
  • Dealing With Excess Nondeductible Solo 401k or Individual K Contributions – My Solo 401k Financial

Add new comment

Log in or register to post comments