excess contribution to 401K

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Topic Author
nickfrank
Posts: 26
Joined: Tue Feb 23, 2010 1:39 pm

excess contribution to 401K

Post by nickfrank »

In Jan.2009 I was notified that I made excess contributions to my 401K plan in 2008. This was due to my being categorized as highly compensated in 2007. By the time I was notified of this I had already rolled my 401K to Vanguard. Since I do my own taxes I contacted the IRS and they said that I would have to report the excess as income for 2008 which I did. They also said that the 1099R forms which I would receive in 2009 would be coded P in box 7 indicating prior year excess contribution, it is coded 8 which is excess contribution for 2009. According to both Vang. and 401K provider this code is correct since the payout to me was in 2009.
To further confuse the issue the amount I received from Vang. is less than the excess contribution to 401K which according to IRS I need to claim as a loss on line 21 of 1040.
Can anyone help me on this mess.

Thanks,
Nick
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm

Post by livesoft »

We just had a thread on this last night. Did you find it and read it?
Topic Author
nickfrank
Posts: 26
Joined: Tue Feb 23, 2010 1:39 pm

Post by nickfrank »

Thanks Ls.
I haven't found it yet. Can you direct me?

Nick
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm

Post by livesoft »

MarkNYC
Posts: 1825
Joined: Mon May 05, 2008 7:58 pm

Re: excess contribution to 401K

Post by MarkNYC »

NICKFRANK wrote:In Jan.2009 I was notified that I made excess contributions to my 401K plan in 2008. This was due to my being categorized as highly compensated in 2007. By the time I was notified of this I had already rolled my 401K to Vanguard. Since I do my own taxes I contacted the IRS and they said that I would have to report the excess as income for 2008 which I did. They also said that the 1099R forms which I would receive in 2009 would be coded P in box 7 indicating prior year excess contribution, it is coded 8 which is excess contribution for 2009. According to both Vang. and 401K provider this code is correct since the payout to me was in 2009.
To further confuse the issue the amount I received from Vang. is less than the excess contribution to 401K which according to IRS I need to claim as a loss on line 21 of 1040.
Can anyone help me on this mess.

Thanks,
Nick
Nick,

I think the IRS representative gave you bad advice, based either on rules that have been changed, or on the rules for "excess deferrals" rather than "excess contributions." Prior to tax year 2008, distribuitons of excess contributions were taxable in the prior year if distributed by March 15 of the succeeding year. Starting with tax year 2008, distributions of excess contributions are taxable in the year distributed. You should include the 2008 excess contribution amount received in January 2009 on line 7 of 2009 Form 1040, in accordance with the Form 1099-R you received. If the amount distributed was less than the actual excess contribution amount, you have a loss on the distribution. IRS Publication 525 specifically allows a loss on the distribution of "excess deferrals" to be deducted on line 21 of Form 1040, but does not specify that the same loss treatment is allowed for "excess contributions." I believe the losses would receive the same treatment but have not seen anything definitive.

Since you incorrectly included the excess contribution on your 2008 tax return, you could amend that return to obtain the appropriate refund.
Topic Author
nickfrank
Posts: 26
Joined: Tue Feb 23, 2010 1:39 pm

Post by nickfrank »

Thank you MarkNYC and Livesoft!

Nick
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