Reply To: 401k Over-Contribution – Which Tax Year(s) Apply?

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#77469
Rennell2019
Participant

Kaye,
Thank you very much for taking the time to review & comment on my situation.

If you have another spare moment, I would like to point out a few more details to make sure there is no ambiguity in how I described my situation.
–    The excess was deposited into the “Company Match Safe Harbor contributions” “bucket” inside my 401k on March 31, 2021. However, they withdrew the excess contribution + associated earnings from the “Roth in plan converted After Tax contributions” “bucket” inside my 401k on November 29, 2021. They told me that the 401k plan has a hierarchy of “buckets” that determines which “bucket” is to be withdrawn from first. This hierarchy indicated that the “Roth in plan converted After Tax contributions” “bucket” was the appropriate “bucket” to take the necessary withdrawal of excess contribution + associated earnings from.

–    The Distribution Statement that I received for the withdrawal of excess states: “It has been determined that you had a 415c excess annual addition or excess amount in the above referenced retirement plan for the 2021 plan year.” This is why they applied IRS Code “E” (Box # 7 – “Distribution Code” – on the 2021 1099-R form).
–    I am under 50 years old.
–    I want to make sure I clarify that I exceeded the overall 401k contribution limit ($57,000) for 2020, not the 2020 Before Tax/Roth limit ($19,500).
–    I did not have 2 different employers involved in this situation.

Knowing all of this:
1)    I assume that your original assessment still holds true that my 2020 Federal income taxes are unaffected by this situation and do not need to be amended, correct?
2)    I also assume that my 2020 Michigan state income tax return is unaffected by this situation and does not need to be amended, correct?
3)    Considering I am under 50 years of age, this withdrawal of excess does not result in any penalties (6% excess contribution penalty, 10% early distribution penalty, or any other penalty), correct?
4)    Is there anything else special that I need to be careful of when taking this return of excess into account on my 2021 taxes?  It seems pretty straight forward: just fill out lines 5a & 5b & indicate the amount withheld on line 25b of Form 1040.
5)    If you have it handy, and in case I get audited, I would love to have an IRS reference to backup the assessment “no need to amend 2020 taxes”. If this is too much trouble, don’t worry about it as I feel I have taken enough of your time. 🙂