Excess contribution to 401-K - how to withdraw?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills

Excess contribution to 401-K - how to withdraw?

Postby runnergirl » Fri Mar 15, 2013 2:43 pm

Every year, I try to make sure that my contribution to a pre-tax 401-K, employer match, and after-tax contributions equal $51,000. By mistake, due to an unusually large bonus, the after-tax portion is greatly overfunded and will necessarily shrink the pre-tax ($17,500) and employer match space. I have called the 401-K provider as well as the human resources department and they claim they cannot refund the excess because I have not yet reached the $51,000 limit. They tell me that once I do reach the limit, all future contributions will be refunded to me. That is, the pre-tax contributions and employer matches will come back to me. Obviously, I would rather have the after-tax contributions come back to me and maximize the tax deduction and match. They say they have never dealt with this before. Any one know what I can do?
runnergirl
 
Posts: 131
Joined: Thu Nov 04, 2010 2:15 pm

Re: Excess contribution to 401-K - how to withdraw?

Postby Alan S. » Fri Mar 15, 2013 6:34 pm

Their statements appear to conform to at least one of the choices in the IRS Regs to correct excess annual additions ie. the 51k limit. If this is for 2013, how much have you made in after tax employee contributions? Sounds like whatever amount that is, you expect your annual deferrals (17.5k limit) and company match to eventually exceed the 51k even if you made no more after tax contributions this year?
Alan S.
 
Posts: 3386
Joined: Mon May 16, 2011 7:07 pm
Location: Prescott, AZ

Re: Excess contribution to 401-K - how to withdraw?

Postby mah001 » Sat Mar 16, 2013 2:50 pm

Obtain a copy of the legal Plan Document, or at least the part that deals with limits on contributions. This is not the same as the Summary Plan Description that must be provided periodically. And the P.D. is also not the same as the adoption agreement. The P.D. could run 80 pages or more, while the S.P.D. and A.A. are much shorter. The employer must follow whatever choices it has made in the plan document. There's a chance you could help both yourself and the employer.

You need to get at least a little technical and call your issue by its correct name. Like Alan said, it's excess annual additions we're talking about. It's not an excess contribution, which relates to the 401(k) nondiscrimination test. It's not an excess deferral, which has to do with the $17,000 limit. Also check the plan's definition of 'limitation year.' If there is no definition it's the calendar year. But the limitation year is the period the plan uses to measure the $51,000. So if they're using something like July 1 thru June 30, that would be good to know.
mah001
 
Posts: 257
Joined: Fri Sep 28, 2012 10:30 am

Re: Excess contribution to 401-K - how to withdraw?

Postby runnergirl » Sat Mar 16, 2013 3:11 pm

Thanks. I only have a copy of the SPD, not the whole PD. I will request one. Alan, my after-tax contributions are close to $40,000 already, which does not leave enough room for me to maximize my $17,500 pre-tax deferral or the employer match (only matched during pay periods for which there is a contribution). I have ceased all contributions to the after-tax and reduced the pre-tax contributions to the minimum for employer match (6%).
runnergirl
 
Posts: 131
Joined: Thu Nov 04, 2010 2:15 pm

Re: Excess contribution to 401-K - how to withdraw?

Postby mah001 » Sat Mar 16, 2013 10:16 pm

After a bit of further review-----Found on IRS web site that excess annual additions should be refunded in a specific order that begins with unmatched deferrals and does not appear to even mention after tax employee contributions. Also, correcting excesses is guided beyond the regulations in the form of the EPCRS guidance. So that would be Revenue Procedure 2008-50, soon to be completely superseded by R.P. 2013-12. Whatever it says in those may not be relevant, since they've already told you they're going to stop taking contributions once you reach the limit---thereby avoiding the excess.

It's still a good idea for general purposes to have a copy of the plan. It does answer a lot of the questions that arise.

I'm wondering about the after tax contributions, especially if you're considered to be a highly compensated employee for the current testing year. The after tax contributions are part of the 401(m) nondiscrimination test. Absent additional details, we can only assume the plan is in fact passing the test, and there's no chance they might need to refund some of those contributions.
mah001
 
Posts: 257
Joined: Fri Sep 28, 2012 10:30 am


Return to Personal Finance (Not Investing)

Who is online

Users browsing this forum: aorin, CAinGA, Clearly_Irrational, Corleone, crestone, cusetownusa, Epsilon Delta, Exabot [Bot], jj, kaudrey, KMan, Rob Bertram, Steelersfan, sunnyday, tyrion and 80 guests