ADP corrective distributions

[Guest chris4013]

I am pretty confused on the procedure. A 2002 adp distribution completed by 3/15/03 is taxable in 2002, correct?

The 1099 for the 2002 excess would show a distribution code of P and be issued in 2004?

Since the distribution is taxable in the prior year, does the 1099 suggest that the recipient of these distributions amend their 2002 individual tax returns?

The distribution company erronously withheld 20%. Does this need correcting?

[Guest Tinman42]

You are correct - Excess Contributions distributed prior to 3/15 on a calendar year plan are taxable in 2002.

You should not withhold because of the retroactive taxation - you're withholding on money taxable in a prior year, but the taxes are being sent to the IRS for the current year.

The affected participant will have to report this amount on his 2002 taxes, whether it's via an amended return or the original. We send a "notice" along with our checks and have advised clients in the past to attach a copy of that notice to their return - the notice shows excess and interest amounts, explains the distribution type (failure of ADP test) and states when the distribution is taxable.

Hope that helps!