Corrective Distributions

[Guest Jenn]

I have a plan with plan year ending 03/31/03. They need an Excess aggregate distribution along with an excess deferral. I'm getting the distribution done within the 2 1/2 mth period. What code do I use? I'm assuming I use code 8, because if I use code P they would have to amend their taxes...is that correct?

[kocak]

Assume Plan year 4/1/02-3/31/03 and failure of ADP/ACP testing. Corrective measure is refunding deferrals and matching contributions (excess contributions and excess aggregate contributions, respectively).

If correction is made within 2 1/2 months after 3/31/03, the excess contributions refunded are generally taxable in 2002 (assuming participant made deferrals in 2002). The excess aggregate contributions would also be taxable in 2002, even if participant didn't make deferrals until 2003.

If the total of excess contributions and excess aggregate contributions is <$100, it is taxable in 2003.

Participant will receive a 2003 Form 1099-R (in Jan 2004). If the amounts are taxable in 2003, use code 8. If taxable in 2002, use code P.

In my experience off calendar year 401(k) plans with returns, usually make them after the 2 1/2 month period and the employer pays the excise tax. This avoids the HCEs having to amending their personal returns.

Michele