Fail ADP test in 2013 - Refund 2014 - W2

[imchipbrown]

NHCE ADR is 5%, so HCE can defer 7% plus $5,500 catch-up.

HCE has already deferred $22,500. Let's call his compensation $150,000. So, he's only allowed deferrals of $16,000.

From what I read, I can not refund before year end.

So, the question is, does the 2013 W-2 show Box 1 wages of $127,500 and Box 12 deferrals of $22,500? And then, in 2014 there's a Form 1099-R with the refund (plus earnings) of $6,500?

[Tom Poje]

1.402(g)-1(e)(3)

is entitled correction of excess deferrals during taxable year

so, I guess you could correct before the year end

but the question is whether you have excess deferrals or excess contributions due to a failed test.

the two are different. the individual didn't defer over the excess if he only had total deferrals of 22,500.

and you indicated a failed ADP test

[imchipbrown]

Agreed, Tom. I don't think I can fail ADP testing before year end. The question is, does HCE take the full deduction (by virtue of his W-2 showing the entire deferral) in 2013 and then get taxed (by virtue of his 1099-R) for the excess in 2014? Seems pretty neat.

[Bill Presson]

Agreed, Tom. I don't think I can fail ADP testing before year end. The question is, does HCE take the full deduction (by virtue of his W-2 showing the entire deferral) in 2013 and then get taxed (by virtue of his 1099-R) for the excess in 2014? Seems pretty neat.

Yes.

[K2retire]

Agreed, Tom. I don't think I can fail ADP testing before year end. The question is, does HCE take the full deduction (by virtue of his W-2 showing the entire deferral) in 2013 and then get taxed (by virtue of his 1099-R) for the excess in 2014? Seems pretty neat.

It's only neat if the tax rate stays the same or goes down. If it happens to be a year when it goes up, you'll have a pretty unhappy HCE.

[imchipbrown]

Agreed. They're always unhappy.