Total Distribution of 401k... 2004. Excess contribution, then rolled in 2005.Corrective action?

[Guest ucrazy51]

I left my employer in 2004. I elected for a total distribution of my 401k and rollover into individual IRA. The actual total distribution occured in 2005. Received notice of excess contribution. I have requested the excess be removed from my current account and returned to me. I am showing the excess as additional income for 2004.

Former holder is to issue 1099R for 2005 reflecting excess contribution and earnings, which would be taxable to me in 2004?? Earnings would be subject to 6% penalty?.

Question: Other than reporting excess as "other income" on 2004 return, are any penalties or taxes due on excess contribution. 10% penalty ??

TIA

[Appleby]

Former holder is to issue 1099R for 2005 reflecting excess contribution and earnings, which would be taxable to me in 2004?? Earnings would be subject to 6% penalty?.

Since the contribution was made (rolled) to your IRA in 2005, any earnings removed with the excess/ineligible rollover (from the IRA) will be taxable in 2005. The deadline for removing the ineligible rollover from the IRA is October 15,2006, assuming you file your 2005 return on time.

For the 401(k) excess, it depends on the type of excess. Assuming it ‘s a salary deferral excess, where you deferred more than the limit for the year, the excess amount is taxed in the year you deferred the amount and the earnings are taxed in the year the amount was distributed/2005.