Fidelity messed up Solo 401k contribution year

[Polaris]

I’ve had a Fidelity Solo 401k for 6 years and have generally been pleased with it.

However, yesterday I received a voicemail from a Fidelity rep stating that the 401k contribution check I mailed them at the end of November could not be processed because it would cause me to exceed my employee CYP (Current Year) contribution amount for 2024 ($23,000 + $7,500 catch-up = $30,500).

I knew this was not accurate because I have mailed them 11 employee contribution checks for $2,550 each ($28,050 total) in 2024. After a couple of follow-up conversations I was able to figure out that they had incorrectly recorded the final 2023 check for $2,500 I sent them in December 2023 as a 2024 contribution.

This is what happened:

I mailed them a $2,500 check and contribution form dated 12/29/23 (my last 2023 payroll date) for a Current Year contribution as I had done without issue for the previous 5 years. The check is shown as received on 1/2/24 according to my statement. But unlike Vanguard, I don’t see any way on the Fidelity web site or my statements to determine the amount I’ve contributed for a given year.

I was able to convince the Fidelity rep that this is what has happened, but she told me the issue would have to be escalated to see If it was possible to correct the error and she would get back to me in a few days.

I haven’t heard back from her yet, but my concern is that Fidelity will not be able to correct their mistake and I will have a big mess on my hands to clean up. At a minimum that will mean my 2023 W-2 form and business and personal tax returns are incorrect, requiring a potentially expensive engagement with my accountant on short notice to try and get this resolved.

I’m wondering if anyone here had to deal with a similar issue before? It’s not a big deal if this is a correctable issue, but it could be a painful process if I have to engage a pro if Fidelity is unable to fix their mistake.

Am I overthinking this? I just want to make sure I’m ready to hit the ground running if It’s not an easy fix.

Thanks!

[RetiredAL]

I suggest to OP, and to any one else, that submitting any time critical paper form late Dec, is pushing their luck.

If me, I'd submit something like this no later than Dec 15 and then verify by whatever means necessary in early Jan that it was processed to the right year. It's much easier to fix a recent deposit mistake, than one 12 month's ago.

[Polaris]

I suggest to OP, and to any one else, that submitting any time critical paper form late Dec, is pushing their luck.

If me, I'd submit something like this no later than Dec 15 and then verify by whatever means necessary in early Jan that it was processed to the right year. It's much easier to fix a recent deposit mistake, than one 12 month's ago.

Yes, I intend to fully fund my 401k employee contributions by the end of November starting next year. I'm just trying to wrap my head around what it might take to fix this now.

[RetiredAL]

I suggest to OP, and to any one else, that submitting any time critical paper form late Dec, is pushing their luck.

If me, I'd submit something like this no later than Dec 15 and then verify by whatever means necessary in early Jan that it was processed to the right year. It's much easier to fix a recent deposit mistake, than one 12 month's ago.

Yes, I intend to fully fund my 401k employee contributions by the end of November starting next year. I'm just trying to wrap my head around what it might take to fix this now.

I'd love to give you guidance, but I can't.

6 years ago, deposited a small ($7k) work-plan closeout into a Schwab Roth at the Schwab local office, when it should have been into a IRA. I discovered it 2 days later. Totally my screw-up. They fixed it as a posting error while I was on the phone with them. I was told it was an easy fix since it was within the same month.

[HomeStretch]

It’s not uncommon 401k withholdings made at the end of the calendar year aren’t deposited with the 401k custodian until early in the following calendar year. This should be a relatively easy fix by Fidelity. While they track internally the contribution’s plan year, they don’t actually report that information to the IRS. You as the plan administrator are responsible for tracking this and reporting it on Form 5500-EZ, if required.

Seems like you could create a schedule of 2023 and 2024 contributions by plan year with the copies of your plan contribution forms attached to show Fidelity that they miscoded the 2023 plan year contribution made in Jan. 2024 as “2024” rather than “2023”.

Perhaps I am misremembering but I thought my Fidelity Solo 401k monthly statements showed the plan year in the description contributions made. If true, that’s one way to timely check that your contributions have been recorded yo the correct plan year.

[avalpert1]

I doubt fidelity is acting as administrator for the plan - what they record is likely irrelevant to how your contributions are treated by the plan. They are just an issue for their own processing rules.
So you shouldn't have to make any changes to your past tax returns. Now, are you keeping the appropriate records as plan administrator for the contributions?

[feh]

Do you mail some form with the check? I would think the year the contribution should be applied to must be indicated in some way.

The employee can contribute up to April 15th, so it's not clear to me how this became an end-of-year issue.

[terran]

I can't speak for Fidelity, but E*trade made it clear to me that there contribution year tracking is just a courtesy and I'm ultimately responsible for keeping my own records tracking contributions and contribution years, so while they will reclassify contribution years if asked it's often not necessary as my own records are what matters. They would probably cut off contributions too, but I usually wait to contribute until the following year anyway so I have final numbers available.

[HomeStretch]

The only time Fidelity’s tracking of Solo 401k contributions (by employer/employee and by plan year) matters is when their tracking incorrectly blocks a valid contribution. Fidelity is not allowing OP’s valid plan year 2024 contribution to be deposited because Fidelity coded the Jan. 2024 contribution of 2023 401k withholdings as plan year 2024 rather than plan year 2023. So Fidelity does need to correct their records in order to accept this contribution deposit. If they won’t, OP could make the 2024 plan year contribution in Jan. 2025 and account for it in their own records as a 2024 contribution.

I ran into this with E*TRADE this year. I made my 2023 Solo 401k Roth contribution after 1/31/24 which E*TRADE’s system automatically classifies as a 2024 plan year contribution. When I tried to make a plan year 2024 Roth 401k contribution in 2024, the E*TRADE system would not allow it as it incorrectly said I had exceeded the 2024 IRS limit for Roth employee deferrals. I had to call to have them recode the Jan. 2024 contribution as 2023 so I could deposit the 2024 contribution.

[Polaris]

It’s not uncommon 401k withholdings made at the end of the calendar year aren’t deposited with the 401k custodian until early in the following calendar year. This should be a relatively easy fix by Fidelity. While they track internally the contribution’s plan year, they don’t actually report that information to the IRS. You as the plan administrator are responsible for tracking this and reporting it on Form 5500-EZ, if required.

Seems like you could create a schedule of 2023 and 2024 contributions by plan year with the copies of your plan contribution forms attached to show Fidelity that they miscoded the 2023 plan year contribution made in Jan. 2024 as “2024” rather than “2023”.

Perhaps I am misremembering but I thought my Fidelity Solo 401k monthly statements showed the plan year in the description contributions made. If true, that’s one way to timely check that your contributions have been recorded yo the correct plan year.

Yes, I already offered copies of my contribution forms to the Fidelity rep but she seemed able to view the forms and cancelled checks on her end. She agreed that the check and deposit form were dated in December 2023 and filled out correctly.

According to my payroll company's records from 2023 and the 5500-EZ I filed in April I made the full $30k employee contribution in 2023. It would be outstanding if this was just a Fidelity internal issue that they could correct.

I also don't see any way to tell what year my 401k employer contributions are counted toward on my statements or on fidelity.com.

[Polaris]

I doubt fidelity is acting as administrator for the plan - what they record is likely irrelevant to how your contributions are treated by the plan. They are just an issue for their own processing rules.
So you shouldn't have to make any changes to your past tax returns. Now, are you keeping the appropriate records as plan administrator for the contributions?

Yes, I can track my 401k plan contributions in several ways: they're recorded in my accounting software, I have copies of all the deposit forms, my paystubs and W-2 reflect my employee contributions, and I have a copy of my 5500-EZ form.

In my current state of limbo while I'm waiting to hear back from Fidelity the only discrepancy I currently have is my paystub reflects a $2,550 employee contribution that Fidelity won't make because they think it will put me over the 2024 $30,500 limit.

[Polaris]

The only time Fidelity’s tracking of Solo 401k contributions (by employer/employee and by plan year) matters is when their tracking incorrectly blocks a valid contribution. Fidelity is not allowing OP’s valid plan year 2024 contribution to be deposited because Fidelity coded the Jan. 2024 contribution of 2023 401k withholdings as plan year 2024 rather than plan year 2023. So Fidelity does need to correct their records in order to accept this contribution deposit. If they won’t, OP could make the 2024 plan year contribution in Jan. 2025 and account for it in their own records as a 2024 contribution.

I ran into this with E*TRADE this year. I made my 2023 Solo 401k Roth contribution after 1/31/24 which E*TRADE’s system automatically classifies as a 2024 plan year contribution. When I tried to make a plan year 2024 Roth 401k contribution in 2024, the E*TRADE system would not allow it as it incorrectly said I had exceeded the 2024 IRS limit for Roth employee deferrals. I had to call to have them recode the Jan. 2024 contribution as 2023 so I could deposit the 2024 contribution.

Thanks, this at least gives me some hope that Fidelity can just fix this on their end and I can continue on without any major hassles. I have a lot going on right now and actually woke up in the middle of the night worrying about this last night, so I could really use a break on this one.

I'm trying to do the right thing and my records are accurate, but I'll have to ping my accountant and see what she suggests if Fidelity can't fix their error.

[MP123]

Did you make a max employER contribution in 2023?

Perhaps if Fidelity can't accept the late employEE deposit they could at least recharacterize it as an employer contribution for 2023 (if you have space). They seem to be fairly flexible about changing the type of contribution, but since it was past the employee deadline (for W2, by two days) they might not be able to apply it to 2023 as an employee deferral. As an employer contribution it could have been made up to your corp tax deadline in 2024.

You'd still need to fix the payroll and corporate returns, but at least you wouldn't have an excess.

[Polaris]

Did you make a max employER contribution in 2023?

Perhaps if Fidelity can't accept the late employEE deposit they could at least recharacterize it as an employer contribution for 2023 (if you have space). They seem to be fairly flexible about changing the type of contribution, but since it was past the employee deadline (for W2, by two days) they might not be able to apply it to 2023 as an employee deferral. As an employer contribution it could have been made up to your corp tax deadline in 2024.

You'd still need to fix the payroll and corporate returns, but at least you wouldn't have an excess.

Yes, I made max employer and employee contributions for 2023. Your scenario is exactly what worries me.

[tesuzuki2002]

I suggest to OP, and to any one else, that submitting any time critical paper form late Dec, is pushing their luck.

If me, I'd submit something like this no later than Dec 15 and then verify by whatever means necessary in early Jan that it was processed to the right year. It's much easier to fix a recent deposit mistake, than one 12 month's ago.

Yes, I intend to fully fund my 401k employee contributions by the end of November starting next year. I'm just trying to wrap my head around what it might take to fix this now.

Several years ago I too discovered Fidelity's inability to be able to accurately track Prior Year vs Current year between the EmployEE and EmployER contributions. I started tracking this Manually myself and have done so ever since.. My records do not match Fidelity and the forms they send.

My records have always been consistent and meet the intent or the IRS regulations. I've never had an audit, but if I do.. I'm not worried about it. My records all line up. I would just write all of this down and not worry about it going backwards. You'll miss 2,500 ish contribution this year... but that is not the end of the world.

[Polaris]

Yes, I intend to fully fund my 401k employee contributions by the end of November starting next year. I'm just trying to wrap my head around what it might take to fix this now.

Several years ago I too discovered Fidelity's inability to be able to accurately track Prior Year vs Current year between the EmployEE and EmployER contributions. I started tracking this Manually myself and have done so ever since.. My records do not match Fidelity and the forms they send.

My records have always been consistent and meet the intent or the IRS regulations. I've never had an audit, but if I do.. I'm not worried about it. My records all line up. I would just write all of this down and not worry about it going backwards. You'll miss 2,500 ish contribution this year... but that is not the end of the world.

At a minimum I'd have to try and unwind my last contribution with my payroll company since Fidelity won't accept the deposit. Hopefully it won't come to that.

[HomeStretch]

If your records show your 2023 and 2024 employee deferrals made through the appropriate calendar year payroll withholdings are at or below the IRS limit, you have nothing to worry about.

Depositing your 12/29/23 employee deferral payroll withholdings into the Fidelity Solo 401k participant account on 1/2/24 is not late. You made the deposit as soon as administratively practicable. This timing issue where payroll withholdings/plan deposits cross calendar years by a few days is a common occurrence for companies/custodians for 401k plans.

If you are sure your records are right (have you checked your account statements to confirm you didn’t make a duplicate deposit in 2024?) and Fidelity won’t correct it, you have alternatives suggested above.

[Polaris]

My situation is simple and my records are accurate. I run payroll once a month and mail a deposit of ~1/12 of the max contribution every month.

It's just that right now my pay stub thinks I made a contribution for my November payroll that Fidelity won't accept.

[Polaris]

OK, a positive update to share. Hopefully this will help someone else if they have a similar issue at Fidelity:

Fortunately, the Fidelity rep that contacted me about this worked hard to clear this up once I was able to convince her what was happening and that it was due to human error on their part.

Despite the fact that I've maxed out my employee contributions every year and no red flags were raised until last week, she figured out that late December deposits from 2021, 2022, and 2023 processed in early January of the following year were not recorded with the correct contribution year.

She did seem to use language that agreed with the consensus here that my record keeping was what ultimately what was important and submitted corrections for my deposits for the previous years. I can now see the new transactions under "Activity & Orders" on fidelity.com, where the original transaction's current year (noted as "CURR ADJ") were debited and new transaction for the previous year (noted as "PRIOR YR ADJ") was credited on the appropriate date.

Once the corrections were processed, the next day she resubmitted my deposits from last month and they are now sitting in my account. She said my issue was resolved and closed my case, but to give her a call if I have any questions and concerns.

She also suggested that I double check any late December deposits that are processed next month to make sure they have been classified with the correct contribution year. I asked if there was an easy way to check that online and after waiting on hold she came back and told me that going to "Activity & Orders" and verifying the CURR/PRIOR YR language was the only way to do it.

So it appears that everything is good and I can make my final 2024 contribution in a couple of weeks without the stress of worrying that I was going to have to a bunch of damage control on short notice.

[HomeStretch]

Thanks for the update resolving your situation.

When you mail your contribution check to Fidelity, do you include the Fidelity contribution form and indicate (1) whether the contribution is employER or employEE and (2) which plan year the contribution is for?

[Polaris]

Thanks for the update resolving your situation.

When you mail your contribution check to Fidelity, do you include the Fidelity contribution form and indicate (1) whether the contribution is employER or employEE and (2) which plan year the contribution is for?

Yes, I include the contribution form with the check and properly fill out the employee contribution section for the current year, but the employer contribution section does not offer that option. The weak link is the human processing the form doesn't always get the year correct.

[backroad]

Fidelity allows you to electronically contribute to the solo 401k. This is new for 2024.

I would stop mailing out paper forms and checks and instead make electronic contributions that process instantaneously.

[Polaris]

Fidelity allows you to electronically contribute to the solo 401k. This is new for 2024.

I would stop mailing out paper forms and checks and instead make electronic contributions that process instantaneously.

The last time I looked in to that Fidelity was very particular about the funding account's ownership. I need to fund it from my business checking account and they would only allow me to fund it from a personal account. It may be possible to work around that, but I haven't really bothered since I could mail them a check once per month.

[tesuzuki2002]

Several years ago I too discovered Fidelity's inability to be able to accurately track Prior Year vs Current year between the EmployEE and EmployER contributions. I started tracking this Manually myself and have done so ever since.. My records do not match Fidelity and the forms they send.

My records have always been consistent and meet the intent or the IRS regulations. I've never had an audit, but if I do.. I'm not worried about it. My records all line up. I would just write all of this down and not worry about it going backwards. You'll miss 2,500 ish contribution this year... but that is not the end of the world.

At a minimum I'd have to try and unwind my last contribution with my payroll company since Fidelity won't accept the deposit. Hopefully it won't come to that.

It sounds like it since it's on their end... I recommend all folks pay attention to their paper work across other their account... things like this happen more when it's just thought of set it and forget it.. There are a lot of odd rules..

[Polaris]

She also suggested that I double check any late December deposits that are processed next month to make sure they have been classified with the correct contribution year. I asked if there was an easy way to check that online and after waiting on hold she came back and told me that going to "Activity & Orders" and verifying the CURR/PRIOR YR language was the only way to do it.

I saw the thread was bumped, so I wanted to mention that my good friends at Fidelity got my final 2024 deposit correct. Now that I know what to look for I can deal with it quickly if it happens again.