penalty tax on late distribution for failed test.

[Tom Poje]

distribution amounts were calculated and submitted to investment house. find out a month later that

instead of cutting checks to the participants the investment house forfeited the money and its sitting in suspense. but it was at least processed within 2 1/2 months.

well, I guess its easy enough to fix by taking the amount out of suspense and distributing it properly, but does the 10% penalty tax apply?

I guess if I cut a check to the person within 2 1/2 months and the person doesn't cash it until a month later it's ok, but what about something like this?

gotta love some of these investment houses.

[Kevin C]

Sorry Tom, the excise tax applies unless the excess is distributed timely. Maybe if the investment house gets to pay the excise tax and your fees for preparing the 5330, they will follow instructions next time.

54.4979-1©No tax when excess distributed within 2½ months of close of year or additional employer contributions made

(1)General rule.— No tax is imposed under this section on any excess contribution or excess aggregate contribution, as the case may be, to the extent the contribution (together with any income allocable thereto) is corrected before the close of the first 2½ months of the following plan year (6 months in the case of a plan that includes an eligible automatic contribution arrangement within the meaning of section 414(w)). The extension to 6 months applies to a distribution of excess contributions or excess aggregate contributions for a plan year beginning on or after January 1, 2010, only where all the eligible NHCEs and eligible HCEs (both as defined in §1.401(k)-6 of this Chapter) are covered employees under an eligible automatic contribution arrangement within the meaning of section 414(w) for the entire plan year (or the portion of the plan year that the eligible NHCEs and eligible HCEs are eligible employees under the plan)). Qualified nonelective contributions and qualified matching contributions taken into account under §1.401(k)-2(a)(6) of this Chapter or qualified nonelective contributions or elective contributions taken into account under §1.401(m)-2(a)(6) of this Chapter for a plan year may permit a plan to avoid excess contributions or excess aggregate contributions, respectively, even if made after the close of the 2½ month (or 6 month) period for distributing excess contributions or excess aggregate contributions without the excise tax. See §1.401(k)-2(b)(1)(i) and (5)(i) of this Chapter for methods to avoid excess contributions, and §1.401(m)-2(b)(1)(i) of the Chapter for methods to avoid excess aggregate contributions.