72(t) tax on returned excess deferrals?

[Guest DIY]

Client is about to distribute excess deferrals/earnings to self-correct a 401(a)(30) violation. Because the excess deferrals are being returned after April 15, does the 72(t) early distribution tax apply to the distributions?

[MWeddell]

There's no excise tax, assuming the 402(g) corrective distribution was timely made. See Treas. Reg. 1.402(g)-1(e)(8)(i).

[AndrewZ]

You can't distribute excess deferrals after 4/15, but you still have to correct by issuing a 1099-R and tax the participant. Thus, they will be taxed again eventually when the participant taxes a regular distribution.

For the initial correction, the principal is taxed in the year contributed (1099-R code P if prior year), and the gain/loss in the year of distribution (code 8).