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Overcontribution to 457b, 403b and HSA

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  • Avatar singh75 
    Participant
    Status: Physician
    Posts: 2
    Joined: 03/11/2019
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    Hi

    Unfortunately I have overcontributed to my 457 B plan by 2700, my 403B plan by 900 and my HSA by 600.

    I was working for 2 employers and did not get my W2 in time. When I called Vanguard last week they said April 6 is the last date for submitting corrections.I have applied for an extension and paid estimated taxes.What would be the best way to move forward.

     

    Thank you

     

     

    #206400 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7161
    Joined: 01/09/2016

    This is not good. Unfortunately, the hard due date for having the overcontribution and related earnings removed from your account is tomorrow, 4/15. I would start the corrections process immediately with the plan administrator of the employer who just now provided your W2, as they could be subject to revocation of the employer’s qualified plan status. This may hasten the process. You will be taxed twice on this amount of overcontribution.

    Hopefully, @spiritrider will stop by and provide some words of wisdom and/or edit my comments, if needed.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #206412 Reply
    Liked by jfoxcpacfp, Peds
    Avatar singh75 
    Participant
    Status: Physician
    Posts: 2
    Joined: 03/11/2019

    Thank you.

    #206419 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7161
    Joined: 01/09/2016

    Oh, crap, now I’ve just pulled an IntensiveCareBear. Heaven help me and may the forum forgive me.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #206436 Reply
    Liked by RocDoc
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1626
    Joined: 02/01/2016

    IRS regulations allow a plan to have a deadline for submitting a return of excess deferral request. April 6th is not unreasonable at all. Requesting return of excess deferrals due to two or more plans is entirely the responsibility of the participant. Plans may but are not actually required to do so.

    A plan is only responsible for excess deferrals made solely to their plan. This is the only circumstance that failure to remove the excess deferrals can jeopardize plan qualification. They should never have allowed them in the first place and it is a serious plan error.

    The OP will now have include pre-tax excess deferrals as W-2 wages to offset the fact that they were not included in the respective W-2 Box 1 wages. I would like to think that tax software would detect this from the respective W-2 Box 12 deferral code entries. If not the OP will have to use whatever procedure necessary to add these excesses to the 2018 now Box 1 entry.

    After 4/15 the excess deferrals and earnings must remain in the plan. While they are now effectively contributed with after-tax money, they are not identified as such and will be subject to the same distribution rules and taxation as pre-tax deferrals. This is the reason for the double taxation statements.

    However, if the amount of the excess amounts are due to designated Roth contributions, there is nothing to be reported. Technically, they should be taxed on withdrawal, but I am not aware of any mechanism to separately track and report taxable amounts on distribution.

    The HSA excess contribution is far easier to deal with. This is process is clearly described in publication 969. You have until 10/15 to remove the excess contribution and earnings. The excess contribution is reported as other income for the tax year of contribution and the earnings are reported as other income in the year of return. They will be reported on a 2019 1099-SA.

    If you do not remove the excess contribution by 10/15, you must report the excess contribution on Form 5329 añd it will be subject to a 6% excise tax on only the excess contribution. The excess contribution and earnings remain in the account However, unlike with excess deferrals, the excess contribution is tracked.

    If you have eligible HSA contribution space, you can reduce your contributions by the excess contribution. You will file an additional Form 5329 for 2019, reconciling the excess contribution and available contribution space. There will be no excise tax or future Form 5329 filing required unless you screw up your HSA, IRA, etc… contributions again in the future.

    There was probably a more concise way to explain all that, but what can I say.

    #206459 Reply
    Liked by Peds

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