I made a DUMB mistake and wonder if anybody has any ideas for saving my butt?

[RayJJohnsonJr]

The CPA asks me" If Ms X has 2 full time employers who offer 401(k) plans, can she contribute the max to both plans since the employers are unrelated. Stupid me thought I knew the answer to be YES since practically every other kind of contribution(PS,MP, DB) would be a YES. Of course I was dead wrong. This went on in both 2007 and 2008. ANY IDEAS WOULD BE APPRECIATED!

Sincerley,

Imbarrased

[PensionPro]

The CPA might have or should have followed the instructions. The 2008 Form 1040 instructions say if the total amount you deferred for 2008 under all plans was more than $15,500 (excluding catchup), include the excess on line 7, which is wages, salaries, tips, etc.

This would only leave the issue of the excess deferrals being taxed again at distribution. I don't see how this would be a qualification issue for the plan(s) yet since the plan(s) were not informed of the excess deferrals.

[Mike Preston]

Well, you were sort of right. There is no prohibition on contributing to multiple plans. Only a tax consequence. When the CPA did this individual's taxes, if they did it right, they would have been made aware that only a single 402(g) limit was excludable from income. At that point, assuming they weren't on extension and therefore had come to this conclusion by 4/15/2008, they could have requested a refund of any excess deferrals from one of the plans (assuming one of the plan allows this, and most do). They most certainly would have been aware of the limit on the amount excludable from income by the time the second year came around!

The net result for those years is that the amount that went into the plans in excess of the respective limits was not excludable from income and will be taxed when withdrawn from the plan (double taxation).

It is likely that they have continued this into 2009. You can "save" 2009 from double taxation by getting the excess deferrals back by 4/15/2010.

[BG5150]

Shouldn't the CPA know about stuff like this?

[Ron Snyder]

Shouldn't the CPA know about stuff like this?

Sure, but the CPA was too lazy to read and therefore contacted neyrey instead.

[MWeddell]

I doubt this helps much, but it is only a problem for the taxpayer in question. It's not a qualification problem for the 2 plans, assuming that are unrelated employers.