Over-contributed to 401(k)

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PolarBearMarket
Posts: 64
Joined: Thu Sep 13, 2018 11:52 am

Over-contributed to 401(k)

Post by PolarBearMarket » Tue Jan 14, 2020 8:57 pm

Hi all-

My company offers an additional after-tax plan which allows for in-plan rollovers, so I contribute to take advantage of the mega-backdoor Roth. However, they also contribute a fixed percentage of our base + bonus to our 401(k) plan each year, so I don't know for sure what my total 401(k) contributions will be until the end of the year.

For 2019, looks like I over-contributed:
  • $19K from traditional 401(k)
  • $18K additional after-tax
  • $24K employer contribution
=$61K total combined contribution.

Since the IRS limit for 2019 is $56K, I need to request a corrective distribution of $5K. The plan administrator is Vanguard. I have not made any in-plan rollovers for 2019 contributions because my company usually fails the HCE test.

Three questions:
  1. Is there anything my employer needs to do to get me the corrective distribution, or is purely between me and Vanguard?
  2. Do I need to ensure my employer updates my W-2 once this is complete? I would have thought so, but I can't find anywhere on the W-2 where additional after-tax contributions are reported - all I see are Roth and Trad 401(k) contributions, so it wouldn't change once this happens.
  3. Any other watch-outs?

manatee2005
Posts: 249
Joined: Wed Dec 18, 2019 9:17 pm

Re: Over-contributed to 401(k)

Post by manatee2005 » Tue Jan 14, 2020 9:47 pm

Are you over 50?

Topic Author
PolarBearMarket
Posts: 64
Joined: Thu Sep 13, 2018 11:52 am

Re: Over-contributed to 401(k)

Post by PolarBearMarket » Tue Jan 14, 2020 10:08 pm

manatee2005 wrote:
Tue Jan 14, 2020 9:47 pm
Are you over 50?
No, 28. So no catch-up contributions.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Over-contributed to 401(k)

Post by Spirit Rider » Wed Jan 15, 2020 12:28 am

You have an excess annual addition. It will first come from employee after-tax contributions. Employee after-tax contributions are not reported on your W-2.

Topic Author
PolarBearMarket
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Joined: Thu Sep 13, 2018 11:52 am

Re: Over-contributed to 401(k)

Post by PolarBearMarket » Wed Jan 15, 2020 9:07 am

Spirit Rider wrote:
Wed Jan 15, 2020 12:28 am
You have an excess annual addition. It will first come from employee after-tax contributions. Employee after-tax contributions are not reported on your W-2.
Thanks!

Alan S.
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Location: Prescott, AZ

Re: Over-contributed to 401(k)

Post by Alan S. » Wed Jan 15, 2020 11:55 am

PolarBearMarket wrote:
Wed Jan 15, 2020 9:07 am
Spirit Rider wrote:
Wed Jan 15, 2020 12:28 am
You have an excess annual addition. It will first come from employee after-tax contributions. Employee after-tax contributions are not reported on your W-2.
Thanks!
A return of the 5000 will include allocated earnings. You will get an E coded 1099R in Jan, 2021. The earnings showing in Box 2a (if any) are taxable on your 2020 return. There is no 10% penalty on these earnings, and this distribution is not eligible for rollover to an IRA.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Over-contributed to 401(k)

Post by Spirit Rider » Wed Jan 15, 2020 12:28 pm

The removal of excess annual additions and earnings as well as any excess contributions due to ACP testing failure are the plan administrator's responsibility. On balance it would generally be better to remove the known excess annual additions sooner rather than later to hopefully minimize any future earnings. However, I would contact the plan to determine how they want to deal with this. I would not take any unilateral action without consulting with them first.

Topic Author
PolarBearMarket
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Re: Over-contributed to 401(k)

Post by PolarBearMarket » Wed Jan 15, 2020 2:50 pm

Alan S. wrote:
Wed Jan 15, 2020 11:55 am
PolarBearMarket wrote:
Wed Jan 15, 2020 9:07 am
Spirit Rider wrote:
Wed Jan 15, 2020 12:28 am
You have an excess annual addition. It will first come from employee after-tax contributions. Employee after-tax contributions are not reported on your W-2.
Thanks!
A return of the 5000 will include allocated earnings. You will get an E coded 1099R in Jan, 2021. The earnings showing in Box 2a (if any) are taxable on your 2020 return. There is no 10% penalty on these earnings, and this distribution is not eligible for rollover to an IRA.
That part makes sense.
Spirit Rider wrote:
Wed Jan 15, 2020 12:28 pm
The removal of excess annual additions and earnings as well as any excess contributions due to ACP testing failure are the plan administrator's responsibility. On balance it would generally be better to remove the known excess annual additions sooner rather than later to hopefully minimize any future earnings. However, I would contact the plan to determine how they want to deal with this. I would not take any unilateral action without consulting with them first.
I have been assuming that Vanguard is the plan administrator. Is that likely, or is there another entity (e.g. my company's HR department) that are typically responsible?

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Thrifty Femme
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Re: Over-contributed to 401(k)

Post by Thrifty Femme » Wed Jan 15, 2020 6:36 pm

I had this happen. I contacted my the benefits team at my company stating I over contributed by about $x and that I would need that money returned to avoid noncompliance with the plan and the IRS. They contacted my administrator and I received a check about a week later. I was disappointed someone's system didn't prevent over contributions.

Spirit Rider
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Re: Over-contributed to 401(k)

Post by Spirit Rider » Wed Jan 15, 2020 7:39 pm

PolarBearMarket wrote:
Wed Jan 15, 2020 2:50 pm
I have been assuming that Vanguard is the plan administrator. Is that likely, or is there another entity (e.g. my company's HR department) that are typically responsible?
Vanguard could be playing the roles of custodian, trustee, record keeper and/or administrator. When people say it is a Vanguard plan, it could be any combination of one or more of the four. You can't assume anything. While Vanguard could be the administrator, it is just as likely that there could be a third party administrator.

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