Do deferral refunds on a SARSEP count against 402(g) limit in a 401(k)?

[Guest sugar daddy]

company issued deferral refunds in 2011 on their SEP and shut the SEP down and started a 401. If a participant (under 50) deferred $5000 into the SEP, received a SEP refund of $5122, which includes yield on the deferrals, how much can he defer into the newly established 401(k) for 2011 that has a short plan year of 9/1/11-7/31/12?

Thank you kindly

[Tom Poje]

while it's true a plan could be disqualified for accepting deferrals above the limit, deferrals are still an individual limit, and a calendar year limit at that.

In other words, when the individual is issued his/her W-2(s) what is the total value of deferrals that will appear for the calendar year.

short plan year, non calendar year, etc don't really matter.

the IRS does it this way so they know if an individual has exceeded the limit, simply by looking at all the W-2s an individual has for a year. hence, the fact an individual might have received a refund shouldn't matter. refunds don't show on the W-2

[Guest sugar daddy]

Tom, are you saying that if I as a participant deferred $5000 into my SEP in 2011, all of that was returned to me plus interest prior to 12/31/11, I would only be allowed to defer $11500 into my newly established 401(k) for the rest of the calendar (not plan) year?

[masteff]

Tom, would the refund from the SARSEP count as a return of excess contributions from an overall tax year perspective? So even if putting the max into the 401(k) would technically be exceeding the limit, the refund would still count to reduce it?

[Tom Poje]

The Pension Answer Book (Chapter 11, Section XI 4c) would describe it this way:

or at least as I can best word it

Suppose I distribute excess contributions and later find I also have excess deferrals?

the amount of excess deferrals is reduced by the amount of excess contributions already distributed.

however, for tax purposes (e.g. the 1099R) , you still report the total amount of excess deferrals. (Ultimately this will match your W-2)

now since you received $X in actual distribution, the remainder would be treated as excess contribution on the second 1099R. It makes a difference because excess deferrals are taxed in one year and excess contributions in another. see 1.401(k)-2(b)(4)(i)(B) and 1.402(g)-1(e)(6). The book says "This is required (although stated in a rather confusing manner)" by the regs. Gotta love it!

the example used is somewhat like this: $1000 distributed as excess contributions on March 1, 2010. Later it was discovered there was excess deferrals = $600.

for tax purposes $600 is treated as excess deferrals, taxed in 2009 (because that wass the year the excess ocurred) and the remainder is treated as excess contributions, taxed in 2010 because that was the year of distribution.

what isn't addressed would be the fact the initial ADP test might have been run incorrectly. if there were excess deferrals, and the person was catch-up eligible, then those amounts should not have been included in testing.

how all this is coordinated between 2 plans is more than I care to think at this time. Normally you combine all deferrals in the ADPs test of qualified plans, but I've never worked with a SARSEP and they are a special animal.

if I understand the facts as presented in this case, $5000 was deferred into the SARSEP and refunded as an 'excess contribution' because no else deferred.

now suppose one defers 16500 into the new plan. If I understand the regs correctly, this means there are excess deferrals of $5000. So now, even though $5000 was refunded as an excess contribution, for tax purposes it is treated as an excess deferral. again, that is my understanding only.