402(g) Limit

[Fisher]

If an employee contributed $16,500 to his 401(k) in 2010, terminated employment and went to work for a 501©(3) organization, can he defer anything to the 403(b) knowing that the 401(k) plan will fail ADP and he will be receiving a refund of say $8,000. I do not think he is able to but would appreciate any thoughts.

[david rigby]

The 402(g) limit is an individual limit, not plan limit.

Don't forget about catch-up contributions, if eligible.

[Tom Poje]

interesting. the plans themselves would face no disqualification issue because neither accepted deferrals over the limit.

assuming the 401k plan has the proper language it should be possible for the individual to request the return of excess deferrals. This would mean the person is taxed in the year the deferral is made, not the year it was distributed as for a failed ADP test. and as I recall the amount of excess contributions is reduced by the amount of any excess deferrals returned.

[Bird]

Yes he can defer to the 403(b). He would have to request the excess deferral to be returned, presumably from the 401(k) plan, and show it as 2010 income on the tax return. It would be best to request the money sooner rather than later so the 401(k) doesn't refund it as an excess contribution and thereby cause a disconnect between his 1040 and the 1099s.