Over contributed to Solo 401k
A client who does his own taxes ASSURED me he could contribute as much as he was doing into his solo 401k in 2017. Lo and behold, he over contributed. We had moved the 401k money to an IRA as he wasn’t self employed anymore and didn’t need to shelter new contributions.
question is, can we direct rollover IRA money BACK to his solo 401k ( which is still open with a small balance) and then remove the over contributions?
question is mostly about moving money back INTO the 401k when we only in the last 6 months took from 401k to IRA. it was all done indirectly.
Thanks
Permalink Submitted by Alan - IRA critic on Tue, 2018-04-10 18:19
The funds do not have to be moved back to the solo K, however the 1099R reporting the direct rollover will have to be corrected into two 1099R forms. One will be for the balance eligible for rollover and the other for the excess amount that must be treated as distributed along with earnings. This will change client’s 2017 tax return by making the excess amount plus earnings allocated to the contribution taxable on Form 1040. This gets reported according to how the business was reported (Sole prop, S Corp etc). In addition, since the IRA contains an excess contribution made in 2017, a request to the IRA custodian must be made to treat the amount not eligible for the IRA rollover as an excess IRA contribution. That amount plus the earnings allocated to that amount in the IRA from the date of the rollover to the date of the corrective distribution will also be taxable on the 2017 return on line 15b. A 10% penalty may apply to the earnings returned on the IRA contribution. If he has not yet filed, he needs to file an extension and then file the actual return after all these transactions have been completed.