Oops...spouse got a new job and over-contributed to 401K

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Chris TwoSix
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Joined: Sun Mar 12, 2017 9:45 am

Oops...spouse got a new job and over-contributed to 401K

Post by Chris TwoSix » Wed Sep 11, 2019 10:46 am

Hello,

I have a tax-related question that I need help with. My wife was working as a part-time reservist in the military, then in the beginning of 2018 she took on an additional civilian job. In her military job she was contributing to the Thrift Savings Plan (which I think is a 401K) and her new civilian job she was auto-enrolled to contribute to its 401K. I didn't turn off her TSP contributions soon enough, which resulted in contributing about $10.5K to the TSP, in addition to putting $18.5K in her civilian 401K for 2018.

What's the best way to fix this? I'm trying to meet the 15 October tax extension deadline. Do I somehow take the money out of the TSP and generate a 1099-R?

Thanks for your help.

Chris

MichCPA
Posts: 710
Joined: Fri Jul 06, 2018 9:06 pm

Re: Oops...spouse got a new job and over-contributed to 401K

Post by MichCPA » Wed Sep 11, 2019 10:52 am

Call the service provider for the 401k or the TSP and explain that you need to have that excess amount distributed. I had the same issue (but it was only $8) and Fidelity was able to fix everything in about a week. It happens often enough that they should be able to explain the considerations.

Spirit Rider
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Re: Oops...spouse got a new job and over-contributed to 401K

Post by Spirit Rider » Wed Sep 11, 2019 11:10 am

I'm sorry, but the above advice is incorrect at this time. Excess deferrals must be removed by 4/15 of the following year. Filing an extension does not change this date. However, the excess deferral must still be reported as income for 2018.

If using tax software it should detect this, because her combined W-2 Box 12 entries should show the excess. If the tax software doesn't detect this or you are filing manually, you would report the excess on Form 1040 Line 1 as wages with an explanation.

Unfortunately, this will result in the excess being double taxed. Once now and again when withdrawn.

Topic Author
Chris TwoSix
Posts: 6
Joined: Sun Mar 12, 2017 9:45 am

Re: Oops...spouse got a new job and over-contributed to 401K

Post by Chris TwoSix » Wed Sep 11, 2019 11:44 am

Ouch, double taxes...thanks for your advice/consideration.

HomeStretch
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Re: Oops...spouse got a new job and over-contributed to 401K

Post by HomeStretch » Wed Sep 11, 2019 11:47 am

Chris TwoSix wrote:
Wed Sep 11, 2019 11:44 am
Ouch, double taxes...thanks for your advice/consideration.
The sting of the double tax would be offset by any employer matching contributions received by your spouse on the excess employee deferrals.

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