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Look at Treas. Reg. 1.402(g)-1(e)(8)(iv) Under 401A(d)(2)(c), the “qualified Roth contribution program” rules, a “qualified distribution” does not include any distribution of any “excess deferral”, or any income on the excess contribution or the excess deferral. The treatment of excess designated Roth contributions is similar to the treatment of excess deferrals that are attributable to non-Roth elective deferrals. Thus, if excess designated Roth contributions (including earnings) are not distributed by the applicable April 15, then those contributions (and the earnings thereon) are taxable when distributed. Based on the quoted statute in your post, though it may look counterintuitive, the result is that if the excess deferrals are attributable to a designated Roth contribution and are not distributed by the April 15 following the tax year in which the deferrals were made, then neither the elective deferral nor the distribution is tax-free. Note, just like regular excess deferrals, the participant will not get a distribution of these amounts until the participant has a distributable event under the terms of the 403(b) plan. The Plan will not distribute the excess deferrals after April 15 just because they are excess deferrals, they will only be distributed if the participant, for example, severs services