Change from After-tax to Pre-tax dollars.

[Guest yahoo]

Employee in a DC plan mistakenly had after-tax dollars withheld instead of pre-tax. What implications if we want to convert after-tax to pre-tax dollars in 1999?

[Guest Dook]

Does the plan allow pre-tax and after-tax contributions? If so, did the employee fill out the wrong form, or did the employer do the deduction wrong based on a good form? If the employee filled out the wrong form, I'd say too bad! If the employer deducted incorrectly they must fix the error within the payroll systems and the plan.

If the plan only allows for pre-tax contributions then the employer erred and needs to correct the plan and payroll records.

[MWeddell]

Could be a problem.

If at the time of contribution the money was designated or treated as after-tax employee contributions, e.g. by reporting the contributions as taxable income subject to applicable withholding requirements, then it can't be 401(k) elective deferrals. Treas. Reg. 1.401(k)-1(a)(2)(ii). This is determined at the time of the contribution, not when the W-2 is produced next January. Hence, if payroll treated it as after-tax, it looks to late to change it now.

[Kathy]

I understand that one can only defer income which has not yet been received but I wonder, if the error was the employer's or the administrator's and not the participant's, could the error be corrected under APRSC? This would then include correcting the form W2.

[This message has been edited by Kathy (edited 06-11-99).]