457(b) Tax-Exempt Excess Deferral

[DTH]

Hi,

If a participant in a 457(b) went over the "individual limitation" for 2009 (i.e., contributed to two unrelated employer 457(b) plans) and the plan allows participants to request this type of distribution, how does this get tax reported?

I assume that the excess contributions are not tax reported at all since the taxpayer would have included the excess amount in their 2009 1040. If the excess has earnings, I assume the employer will include that amount in W-2 for the year distributed?

I have looked every where for earnings tax reporting instructions and have come up dry.

Thanks!!!

[rcline46]

Its in the instructions for the 2009 Form 1099-R - check the IRS website.

[Guest Pension Girl]

Its in the instructions for the 2009 Form 1099-R - check the IRS website.

I think she is referring to 457b top hat plans. You would not look at the 1099 R because distributions from these plans do not get reported on a 1099R, they are reported on W2.

Any ideas?

[mbozek]

Hi,

If a participant in a 457(b) went over the "individual limitation" for 2009 (i.e., contributed to two unrelated employer 457(b) plans) and the plan allows participants to request this type of distribution, how does this get tax reported?

I assume that the excess contributions are not tax reported at all since the taxpayer would have included the excess amount in their 2009 1040. If the excess has earnings, I assume the employer will include that amount in W-2 for the year distributed?

I have looked every where for earnings tax reporting instructions and have come up dry.

Thanks!!!

Excess contributions and earnings are included in gross income in the tax year deferred. See Reg. 1.457-4(e)(1) and (4).

[DTH]

Thank you.

Distributions from a tax-exempt 457(b) plan are tax reported on a W-2. For earnings, I assume these are tax reported on a current year W-2.

How are you tax reporting an excess deferral contributions? As these are included in income in the tax year contributed, does the corrective distribution of the excess deferral contribution amount need to be reported at all? Whether it is a plan excess or an individual excess, the W-2 for the year of contribution will indicate the amount deferred. If that amount is over the deferral limit, the IRS 1040 indicates the excess in included in the individual's income.

The rule of thumb for a payor is tax report all plan distributions. So I assume that the excess contribution is tax reported too. And it will be up to the taxpayer to reconcile with the IRS.

[Guest dietpepsi]

As a service provider I handle one of two ways. I offer a W2 reporting service that the client could choose to use. If the client does not choose to use my W2 reporting service, I will send the excess deferral and earnings to the employer and the employer is responsible for making sure the W2s are correct. I would expect the employer to do a corrected W2 for 2009 if necessary to report the excess contribution as wages for 2009. I would expect them to add the earnings to the 2010 W2. If the client is using my W2 reporting service, I would send the excess contribution and earnings to the participant and I would do the 2009 and 2010 W2's.

[Guest DirectedTrustee]

As a service provider I handle one of two ways. I offer a W2 reporting service that the client could choose to use. If the client does not choose to use my W2 reporting service, I will send the excess deferral and earnings to the employer and the employer is responsible for making sure the W2s are correct. I would expect the employer to do a corrected W2 for 2009 if necessary to report the excess contribution as wages for 2009. I would expect them to add the earnings to the 2010 W2. If the client is using my W2 reporting service, I would send the excess contribution and earnings to the participant and I would do the 2009 and 2010 W2's.

In preparing a corrected 2009 W2, are there dates by which you are required to perform the corrective distribution? There are no concerns reporting the excess as 2009 W2 income if it was in the trust and n ot distributed until 2010?

[30Rock]

I thought a top hat plan became an ineligible plan if the 457 limit was exceeded for a calendar year? Is there even an approved correction program for top hat plans?

[John Feldt ERPA CPC QPA]

For a 457(b) plan sponsored by a government, excess deferrals must be distributed as soon as administratively practicable (isn't that a nice deadline?)

For a 457(b) plan sponsored by a tax-exempt organization, excess deferrals must be distributed by April 15 of following year (today)