Excess Rollover
My former employer asked me to return $200 (100 pre-tax 401K, 100 Roth 401K contribution matches) that I was not eligible to receive, made in 2008. I have since rolled the money over to a Rollover and Roth respectively. Are the following corrective steps in compliance with IRS rules?
1. Return the $200 to the Employer as requested.
2. Remove $100 from each IRA plan (Rollover and Roth) with any related earnings/losses.
3. File an amended return for 2008 showing the excess removals.
4. No penalty will be assessed, since there will be no earnings and since I completed this by Oct. 15, 2009; ie. no 5329 needed.
Uncertain about:
Will there be changes in 2008 AGI and how much, $100, $200? Even though these were merely matches.
Will I require the 1040X and the Letter of Explanation only?
Thanks.
Permalink Submitted by Anonymous (not verified) on Wed, 2009-07-01 20:53
I wanted to comment about my previous question, which I have not received a reply. As it turns out the circumstances have changed, so here is a brief summary:
My former employer asked me to return $200 (100 pre-tax 401K, 100 Roth 401K contribution matches) that I was not eligible to receive, made in 2008. I have since rolled the money over to a Rollover and Roth IRA respectively.
It appears the custodian is willing to “undo” the transaction by taking the money back without an actual excess removal. I am sure the 1099R and 5498 amounts will be reduced.
Does this require me to file an amended return for 2008 or should I just leave it alone, since the amounts out of the 401K and into the IRAs will match again?
Thanks.
pmk
Permalink Submitted by Clyde Wolf on Wed, 2009-07-01 23:49
Pko1068366,
Because these were matching contributions to your 401k plan that were rescinded, there would be no change in your gross income.
As long as there were no changes in your contribution amounts, your AGI would not change.
I see no reason for a 1040-X. I would leave this alone.
Permalink Submitted by Alan Spross on Thu, 2009-07-02 00:11
Was this excess due to an ADP/ACP failure?
Permalink Submitted by Anonymous (not verified) on Thu, 2009-07-02 03:50
Thanks.
cwolf,
I agree with you about the net income, but I am still worried that 1099R amount reported will be X-200 and I reported X. So I am on the fence about doing something.
alan,
I not entirely sure, if I understand all the qualified plan rules and terminology. The letter stated “ineligible” contributions due to certain pro-rata vacation credits that I surpassed after leaving. I am guessing the answer is “yes” to your question.
pmk
Permalink Submitted by Alan Spross on Thu, 2009-07-02 04:56
pmk,
This sounds more like an individual error on your account, not an ADP/ACP violation of the entire plan. The employer should really provide you with an explanation on how to handle it. With respect to the IRA, this situation is referred to in Pub 590 on p 50, and should be corrected in the usual manner of a regular excess IRA contribution for each type IRA.
If the 1099R is revised to the reduced amount, it still will not affect your taxable income, you just rolled over less. Despite reference to the 1040X, I tend to agree with cwolf that it should not be necessary, but you will still need an explanatory statement regarding the IRA excess contribution correction. I understand that the earnings allocation would be negative for both IRA types?
Permalink Submitted by Anonymous (not verified) on Thu, 2009-07-02 06:25
Thanks alan.
Luckily, the excess removal will not be required, since they assured me they will cancel the whole amount and rebook with the correct amount. Thus, only the 1099R (from qualified plan) and 5498 (IRA custodian) will change.
I will wait until this actually goes through and I see the forms. Then, file something with the IRS to be safe (explanation statement). This should take care of it.
pmk