Excess 401(k) vs. excess Traditional IRA contribution for 2022

Submitted by Anthony Wan on Tue, 2023-04-18 16:46

I know there is an ongoing 6% penalty tax on overcontribution to Traditional IRAs until corrected.

A client made EXCESS contributions to his 401K/403B plans of $9K in 2022 because of a change in jobs. The 401K provider will NOT make a corrective distribution because it is too close to the tax filing deadline.

Since a corrective action could not be taken before the tax deadline of 4/15, I believe that: a) the excess contribution of $9K will be taxed for 2022, and b) the excess contribution of $9K will be taxed again upon distribution say in retirement.

1) Are there any ongoing taxes/penalties in 401K plans if an excess contribution is left alone in the plan?

2) In other words, are there other tax/penalties OTHER THAN the client being double-taxed the year of overcontribution, and the year of distribution?



Submitted by Alan - IRA critic on Tue, 2023-04-18 19:55

  1. Not if the excess in a single plan does not exceed the elective deferral limit. The excess in this case was due deferrals being made to two plans, but most likely did not exceed the limit within any one of them.
  2. The only consequence to the participant is the eventual double taxation many years down the road, and that may be offset by the continued deferral of the excess and on the investment gains on the excess. This is in sharp contrast to an IRA excess contribution subject to the 6% excise tax each year if not corrected.

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