In 2006 i switched employers. I realize that in 2006 there is a $15K contribution limit to 401K plans. But i have exceeded this limit by $241. Since i never reached the $15K limit with each employer in that year, the automatic correction by each plan administrator never took place.
So now i am preparing my taxes & i have found that execess contribution. Wondering what is my next step in terms of taxes.
2007-03-11 08:06:09 · 5 answers · asked by gapreet 1 in Business & Finance ➔ Taxes ➔ United States
You can withdraw the excess contribution and the associated gain by the filing deadline for your 2006 return without penalty. Contact your plan administrator to take care of this.
2007-03-11 08:12:07 · answer #1 · answered by Bostonian In MO 7 · 3⤊ 0⤋
You should request a corrective distribution of $241 from one of the plans you contributed to. If the corrective distribution is given to you by April 17, 2007, you will pay tax but no penalty on the distribution. If there is a gain on the distribution, you will pay tax and penalty on that amount.
Pick the plan that has made the least, or lost money. That way, only $241 will be taxed.
If you don't get this done, then you will essentially lose the $241 to excise tax (6% a year), or be taxed on it twice if you withdraw it after April 17, 2006.
Wait until you get the corrective distribution, or file an amendment.
2007-03-11 09:21:28 · answer #2 · answered by ninasgramma 7 · 0⤊ 0⤋
Next step is to notify one of your employers that you exceeded the 402(g) limit and you'll need a distribution. You'll also need to calculate income on that $241. Any reasonable income calculation will be ok.
The income is always taxable in year of distribution. The excess contribution amount is taxable in prior year if paid out prior to April 15. If paid after April 15 then it's taxable in current year AND prior year. So get it done.
Lastly, you won't get a 1099-R in time for the distribution. So what you do is show the income part exactly as your w-2 states (with the extra $241) and then down on the distribution section (line 16 I believe) you show the amount as income so that the two offset and you truly only get the $15k. Then include a note with the return (or if you get it in time, the confirmation statement of the liquidation).
2007-03-12 03:47:16 · answer #3 · answered by digdowndeepnseattle 6 · 0⤊ 0⤋
All of these gentleman are correct. You can have the amount removed and pay taxes on that money and any interest earned on that money. It's much better that you caught it in time...
Save money on any tax expenses that you have this year as well. I went to the site below and was refunded all of my H&R Block tax expenses. I simply went to the site, filled out my information... and voila! I just found the site this year, so I have not idea if they offered this service before or not. However, I will be looking for them again next year.
2007-03-15 05:54:34 · answer #4 · answered by Jason C 2 · 0⤊ 0⤋
bostonianinmo is correct.
2007-03-11 08:27:04 · answer #5 · answered by exirsman 5 · 0⤊ 0⤋