Accidental excess 401 K contribution

[jjquantz]

OK, here's the situation:

1) My pay stub shows that I am on track to have $23K in 401K contributions withheld for this year with the last contribution coming in this month's pay check (my last).
2) However, after the August contribution was processed, my 401K account shows $24.125K worth of my contributions. It also shows the employer's contribution separately, so this is not a confusion of the match with my contribution.
3) This discrepancy first appeared in the May pay period and seems to have resulted from the change I made in my monthly contribution starting then. At that time I reduced my monthly contribution to $1500 from $4000. Somehow the processing of the paycheck reflected this but the contribution to Fidelity did not. Subsequent months have been correct.
4) I drew my employer's attention to this discrepancy when it first occurred in May. I clearly stated that I wanted my 401K contribution to total $23K for the entire year. I further stated that the best way to do this MIGHT be to reduce the contribution to the 401K account in future months to compensate for the excess contribution in May. Apparently the part-time financial manager we hired wasn't able to figure out how to remedy this and, other than noting the receipt of the email with that suggestion, did nothing.

So, in short, if I were to do nothing, at the end of the year my W2 would show $23K in 401K contributions, but my 401K account statement would show $25.5K in contributions. I am pretty sure that this could cause me some difficulties.

What is my best course of action? I plan on calling Fidelity today and then contact my (soon-to-be former) employer. Given the lack of financial competence in the organization, I will need to present them with a step-by-step solution that is fool-proof.

[RockyMtn]

Talk to Fidelity. My guess is that they will automatically roll the amount above $23k into an after tax account. At that point you can just pull it out with no penalties.

[jjquantz]

Quote:

Originally Posted by RockyMtn Talk to Fidelity. My guess is that they will automatically roll the amount above $23k into an after tax account. At that point you can just pull it out with no penalties.

Thanks, RockyMtn. I also suspect this. My concern is that this will be treated as a taxable 401K withdrawal. I would not consider that a problem except that I suspect that my former employer is going to want to have me return the funds to them. This would leave me having to pay taxes on money that, in the end, I did not receive.

I am hoping that someone else experienced this so that I can go into the conversations with a plan to address most things that might crop up.

[Ronstar]

I over contributed a couple of times. Maybe a couple hundred each time. My 401k sent me a check in the amount of the overpayment. I don't believe it wasn't treated as a 401k withdrawal. I can't remember what happened to the company match.

Yes - contact Fidelity. They should know what to do in your case. I would think that this happens a lot.

[RockyMtn]

It will not be treated as a taxable withdrawal. Sounds to me like the whole thing will work out over the course of the rest of the year as it relates to how much you contributed, company match, etc. Call Fidelity and see what they say but I wouldn't worry too much about this.

[Car-Guy]

I had this happen twice in my working career. One year my company taxed the excess and put the money in a separate "tax paid" account. Another year they simply stopped deducting the money from my paychecks. (I'm guessing the reason for the two different methods was due to a change in policies on how these situations were to be handled.) To avoid this in the future, I started adjusting my contributions percentages whenever I got my annual rasie so I would stay just a little below the IRS pretax limit for that year.

[frayne]

Also had the same thing happen and the company 401K administrator was Fidelity. They simply noted it as an after tax contribution. When I retired and rolled over my 401K into an IRA I had about $30K in as after tax contributions.

[pb4uski]

Quote:

Originally Posted by frayne Also had the same thing happen and the company 401K administrator was Fidelity. They simply noted it as an after tax contribution. When I retired and rolled over my 401K into an IRA I had about $30K in as after tax contributions.

Similar here, but lesser amount. When I retired and rolled my 401k into my IRA, I received a check for the after-tax balance. I later found out that I might have been able to roll it over into my Roth IRA but since the amount wasn't too much it wasn't a big deal - it just reduced my withdrawals that year.

[jjquantz]

Thanks, everyone. I'm still unclear about one thing, though. All of you with excess contributions still had the funds appear on your W2 as taxable wages, right? My overcontribution seems to have been generated out of nowhere. It was not diverted from my paycheck either pre or post tax. I'll call Fidelity and talk it through with them.

[frayne]

When you get your W-2 your 401K contributions should be listed in box 12 with a code D. You should be able to compare that with box 1 which should be less (by that amount) than what you have on boxes 3 & 5 social security and Medicare wages.

[LOL!]

My spouse overcontributed because of a change of jobs and a Fiscal Cliff snafu by the owner of her new company. She requested a "corrective distribution of an excess deferral" (google that at the IRS web site) and eventually received a check.

The IRS explicits tells one how to report this on their taxes. She received a 1099R with the wrong code in that box 7 or 8 and had to get a corrected 1099R so that there would be no penalty. The IRS says the money gets added to your Form 1040 line 7 in the year you made the excess deferral (in this case 2014). It is unlikely to be included on your W-2.

A possible complication is that any gains made by your excess deferral must be withdrawn as well. Those excess gains should get their own 1099R and are subject to tax and penalty.

Also note that in IRS-speak "excess deferral" is not the same as "excess contribution". Go figure that one out.

[jjquantz]

frayne, exactly, but with my current pay stub it is clear that my W2 will report the correct total salary and the intended 401k contribution ($23,000) but there will have been $25,500 deposited into the 401k account. Right now the 401k account shows $2500 more than the amount shown as my contribution on the pay stub (which has always matched the W2 in the past). This $2500 was never included in my gross pay.

Also, I just got off the phone with a Fidelity rep who said "contact the appropriate person in HR at your company". This is frightening, because that would be the person who messed it up in the first place.

[jjquantz]

Quote:

Originally Posted by LOL! My spouse overcontributed because of a change of jobs and a Fiscal Cliff snafu by the owner of her new company. She requested a "corrective distribution of an excess deferral" (google that at the IRS web site) and eventually received a check. The IRS explicits tells one how to report this on their taxes. She received a 1099R with the wrong code in that box 7 or 8 and had to get a corrected 1099R so that there would be no penalty. The IRS says the money gets added to your Form 1040 line 7 in the year you made the excess deferral (in this case 2014). It is unlikely to be included on your W-2. A possible complication is that any gains made by your excess deferral must be withdrawn as well. Those excess gains should get their own 1099R and are subject to tax and penalty. Also note that in IRS-speak "excess deferral" is not the same as "excess contribution". Go figure that one out.

This sounds very much like my situation! I'll look this up and see how to minimize the damages and confusion. Thanks!

[rodi]

We had a number of employees at my former workplace effected by this. Due to a corporate acquisition (we were acquired/spun off from our former overlords) the "caps" didn't work correctly. Previously you could front load contributions earlier in the year. With the April /May corporate change - many of us did the math and realized we'd have significant overcontributions - because the cap/automatically end to contributions wasn't going to work right.

I talked to HR, who shunted me over to the 401k provider (in this case, Mass Mutual) who did the math and issued me a check. I personally know at least 20 people who had to do the same thing. I was issued a 1099R for the check. Many coworkers had this issue straddle two years, because the overpayment wasn't returned till after the end of the year. (I realized, and raised it as an issue in September.)

[Animorph]

Quote:

Originally Posted by jjquantz frayne, exactly, but with my current pay stub it is clear that my W2 will report the correct total salary and the intended 401k contribution ($23,000) but there will have been $25,500 deposited into the 401k account. Right now the 401k account shows $2500 more than the amount shown as my contribution on the pay stub (which has always matched the W2 in the past). This $2500 was never included in my gross pay. Also, I just got off the phone with a Fidelity rep who said "contact the appropriate person in HR at your company". This is frightening, because that would be the person who messed it up in the first place.

Just to be clear, your take home pay was consistent with a $1500 401k contribution correct? So the $2500 is all company money that shouldn't be in your 401k? Doesn't seem like the IRS would have the info to figure that out if your W2 didn't show the $2500. Your company should eventually figure it out, with your help.

[jjquantz]

Quote:

Originally Posted by Animorph Just to be clear, your take home pay was consistent with a $1500 401k contribution correct? So the $2500 is all company money that shouldn't be in your 401k? Doesn't seem like the IRS would have the info to figure that out if your W2 didn't show the $2500. Your company should eventually figure it out, with your help.

Yes, that's it exactly. However, the company money is characterized in the 401k account as a contribution by me, not as a company contribution.

The HR person has a call in with her Fidelity contact. I hope to hear back soon about a resolution. Will update here just in case anyone remains interested.

[LOL!]

Oh, if it an employer excess, then it probably isn't your problem. If your W-2 shows your contribution and your contribution is less than or equal to the limit, then you are good to go. I suspect that your employer will simply void those excesses and it will appear as if they never happened.

I know that my former employer kept contributing to my HSA as if it was deducted from my paychecks even though I was no longer employed there. After they were informed, they took the money back.