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Repayment of overpayment of distribution


Guest ypartridge

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Guest ypartridge

A participant was paid out 1/99 based on his 6/98 acct bal. Unfortunately, the 12/98 value was down, so now he must repay the difference (around $340).

the question came up as to whether he must repay the whole $340, or only 80%(since he received a lump sum).

I'm also assuming that the ER must reduce his next tax deposit by the difference.

thanks for any input.

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Adjusting withholding is unnecessary. There is an easier way to deal with the tax withheld portion. After all, 20% is required tax withholding amount. One may elect to withhold more than 20%.

Calculate correct cash distribution, by taking correct distribution, minus amount previously withheld. This is amount of cash participant is now entitled to, given the amount that was originally withheld.

Then take amount participant has received previously and subtract correct cash portion determined above. Ask participant to return the difference.

Upon receipt of differnce, issue corrected 1099-R and you are done. Good Luck.

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