"Paul A Thomas" <taxman[at]negia.net> writes:

- quote -

I disagree. See page 8 of IRS Publication 525.

Phil Marti
Topeka, KS

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"Ken" <kjarvis[at]meti.com> wrote:

- quote -

Excess contributions are taxed to the employee in the year
they are returned to the employee. They are reported on a
1099R ~only~ if the excess is returned in a year different
than the year the excess contribution was made (so if the
employee exceeds the contribution limits and the excess is
returned in the same year, it all gets reflected on the
W-2). Do not amend prior year returns.

--
Paul A. Thomas, CPA
Athens, Georgia
taxman at negia.net

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kjarvis[at]meti.com (Ken) writes:

- quote -

Correct.

Phil Marti
Topeka, KS

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401(k) Excess Contributions

I understand that this is a fairly common situation, I just
never hit it yet. I figured that someone else here may have.

Fact Pattern
1. Client that made the maximum allowed 401(k) contributions
in 2002 (Per W-2).

2. Client is a highly paid employee.

3. It appears client's employer did not complete excess
contributions testing until 2003.

4. Employer determined client made excess contributions and
returned excess contributions to employee in 2003.

5. No adjustment was made for excess contributions in 2002's
income tax return (i.e., Taxable Wages do not reflect the
excess contributions returned to client in 2004).

6. In 2004, client receives a "2003 1099-R" with a "Code P
Distribution Code". The "2003 1099-R" with a "Code P
Distribution Code" also contains an amount of tax withheld.

Here is what I think I should be doing.

1. Amend the client's 2002 income tax return to include the
income as shown on the "2003 1099-R" with a "Code P
Distribution Code".

2. On the 2003 income tax return, the amount on the "2003
1099-R" with a "Code P Distribution Code" is not taxable.
However, the amount of federal tax withheld on the "2003
1099-R" with a "Code P Distribution Code" is included as a
tax withheld for 2003.

Any advice is greatly appreciated. Thanks in advance.

Best Regards,
Ken

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