Overpayment of match to HCE

[Guest terid]

Owner of 401(k) Profit Sharing Plan received a 6.2% match, however the NHCE's received 5%. This plan is terminating, the owner has taken out his money and rolled over to an IRA (with additional match). Owner will not put the $2,000 overpayment back into the plan for re-allocation.

Plan will not be applying for a determination letter for the termination.

Does the plan stay open until this is resolved?

or

Should a letter be sent to the financial institution, the money was rolled over to, stating this $2,000 is ineligible and to send it back?

or

Should we sent out 2 1099's one for the $2,000 as an excess contribution and one for the eligible rollover?

:confused:

[austin3515]

Just went through a similar experience with 401(k) deferrals, and that's exactly what we did - letters to financial institution indicating ineligible rollovers. The participant must also authorize this.

The twist here is that it doesn't rightfully belong to the owner, as did the salary deferrals in my scenario. It would seem to me that the contribution was made in error. The Plan may provide some sort of correction like the money goes back to the company. OF course if the tax return has already been filed, that does complicate things.

I'm glad my client isn't the only to distribute all assets before running all the appropriate tests. Unbelievable!