402(g) issue

[Pammie57]

An owner exceeded the 402(g) limits in 2014 by 496....he also had to take an RMD of over $4000 - which he did in December 2014. I want to make sure that since you can't use a corrective distribution to satisfy a RMD - that he can't use part of the $4000 to say that the excess was distributed. I can't find exact back-up, so would like to be sure before I advise them to distribute the excess of 496 plus earnings (I know he missed the April 15 deadline)....thanks.

[austin3515]

I don't see any connection between the RMD and the 402g. He needed to take the RMD AND the 496 needs to be distributed.

Now of course it will be taxed twice.

[Pammie57]

Thanks Austin - groovy of you to answer....but not groovy that he is taxed twice, but I know you are right.

[Tom Poje]

something like this

when he filed his 2014 taxes his W-2 indicated 23,496 in deferral (catch up would be 5500, so excess deferrals of 496.)

the sophisticated govt computer should have, at that point, indicated 496 in excess and taxed him appropriately.

If things had been done appropriately and timely there would be a 1099R to indicate this.

assuming the individual is only working for one company then the plan has accepted deferrals above the deferral limit which is cause for disqualification, which is correctable under EPCRS. the distribution is made after April 15, so the person is taxed in the year of distribution, hence the double tax.

If the person was actually working for 2 unrelated companies, and it is possible neither plan accepted amounts over the deferral limit, so neither plan is subject to disqualification (despite the fact the person is over the limit)

[Pammie57]

He only works for one company - doesn't get a W-2 - gets a K-1 and he makes well over 260,000 so we use that comp figure (still waiting on K-1) ...we found the error when reconciling the assets, and there was no prior year receivable. Deferral amount deposited was 23496. thanks for the input!

[Bird]

Are you sure you can't find another way to use the $496, e.g. as a profit sharing contribution? If it is for him, it gets deducted on the same place (1040).

[austin3515]

Perhaps some 401k was deposited in January 2015 that was actually a 2015 contribution

[Pammie57]

Believe me - I checked in 2013 to make sure there was no receivable, and all of the $ 23,496 was received in 2014. However, I think he is undermatched...so I am pondering if perhaps the excess is really match...waiting to get that K-1 to confirm that his compensation is definitely enough to get the full 5% match. Currently, he only has $7500 as his matching contribution....and 260000 x 5% is 13,000. My brain might be slightly fried, but I can't think of a limit that would exceed...comments?

[Mike Preston]

Your brain is completely raw.