Discussion:$22,000 contribution to 401K
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Discussion Forum Index --> Tax Questions --> $22,000 contribution to 401K
| 26 March 2007 | |
| Taxpayer contributed 15,000 for 401K plan, he changed his job and contributed another $7,000 under the 401K of the new employer. Total contribution in 2006 was 22K.
Does he have to withdraw the 7K before April 15th? What would be the implications if he won't? Thanks, Tom | |
| 26 March 2007 | |
| If age 50, he could contribute an additional 5k. Excess, I think, is taxed at 50%. | |
| 26 March 2007 | |
| If excess is not withdrawn prior to 4/15 (4/17??) it is subject to double taxation, first in the year of over-contribution, and second in year of withdrawal. Don't think the 50% penalty is correct, but there is an excise tax that applies each year until corrected. Moral of story, get it out of there before 4/15. | |
| 26 March 2007 | |
| My bad on the 50%. Don't know how my fingers actually typed that....please forgive. | |
| 27 March 2007 | |
| First make sure he withdraws the excess and earnings. Employer probably won't issue a corrected one. Add the 7K to box 1 of the W-2 on his second employer - that is where the excess contribution occurred. He will receive a 1099R next year with code P indicating the tax was paid on 2006 return. The IRS then will match the 1099R to his 2006 W-2 and see he in fact did pay the tax in 2006. | |
| 27 March 2007 | |
| New ER should not issue a corrected W-2. It is correctly reporting a contribution of $7k. That contribution is an historical fact. Solomon is correct, the excess distribution technically should be added to line 7 taxable wages. I prefer to show it on line 21 so that it stands out better and so that the line 7 wages still ties out to the sum of all W-2's. | |
Death&Taxes (talk|edits) said: | 27 March 2007 |
| A simple way to get it on the return is treat it like a 1099 Coded 8...it will get in the right place on Line 7....leave notes to yourself. | |
| 27 March 2007 | |
| Jd - I am with you but the 401k section of IRS requested I do it as mentioned in my post. | |
- pasting in a great example from Jdugancpa that's sitting over in a DIY thread many people might not otherwise notice:
| 1 April 2007 | |
| Heres the deal: EE defers $10k at ER#1. Changes jobs, defers $6k at ER#2. Under 50, limit is $15k; excess deferral of $1k. Taxguy discovers problem in March. Now the excess deferral with earnings has grown to $1100. EE informs ER#2 plan administrator who rushes refund so the excess deferral gets corrected before 4/15 (4/17 in 2007??, who knows). EE gets refund of $1100. Taxguy adds $1000 to line 7 of 2006 Form 1040 so that his wages are $1000 higher than the W-2 total. In Feb2008 EE gets 1099-R reporting distribution which occurred in 2007. (Actully, I think he should receive 2 1099-R's, one showing distribution code of "P" (I think, going from memory here and it is 11:25 pm Sat) which tells EE, taxguy and IRS to ignore this 1099-R for 2007 because taxguy has already added back into 2006 wages (remember, it was never supposed to have come out of 2006 wages in the first place). The second 1099-R should show the $100 earnings as a distribution from the plan, subject to tax and penalty, if applicable. | |
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