ADP Refund Made Timely but changed after the deadline...

[MelissaYancy]

In this case there were losses. They were overstated for the intial refund which was processed timely. During audit, an error was found. Now we are beyond the deadline but within the correction period. Would the amount on the 5330, Schedule H, Line 1 be the amount of the late contribution refund or the entire excess contribution?

[Lou S.]

I believe it is just the deferrals not refunded by the deadline that are subject to the excise tax.

[Tom Poje]

a few of the reg cites are:

1.401(k)-2(b)(5)(I) if plan does not correct excess contributions within 2 1/2 months....the employer is liable for a 10% excise tax on the amount of excess contributions

1.401(k)-2(b)(2)(iv)(A) is entitled Income allocable to excess contributions

so the income is totally separate from the excise tax.

1.401(k)-2(b)(2)(vii)(D) partial distribution...if less than the entire amount was distributed...as a pro rate distribution

In addition, if it helps, one way of remembering the rule, recall that any match related to excess contributions must be forfeited 1.401(k)-2(b)(4)(ii) and you never adjust that for gains!

[MelissaYancy]

Thank you both. We have an attorney who beleives the tax should be on the entire amount and not just the amount not refunded by the deadline.