Roth vs. Voluntary Contributions

[thepensionmaven]

We just received W-2s for one of our plans.

The W-2 lists 401(k) contribution as well as Roth, the total of the 2 is over $18K.

 

The plan allows for participant voluntary contributions and the accountant is willing to redo the W-2s.

Any problems?

[QDROphile]

No problem if there is only an error to correct in the reporting.  If in fact the the total deferral is greater than the limit (because the W-2 is correct in its description of what happened in payroll), then there is a protocol for correction.  Depart from it at your peril.  

[austin3515]

What do the voluntary contributions have to do with it?  After-tax contributions would only reported in Box 14, apparently on an optional basis (not box 12).

But I'm with QDRO... Do not redo the W-2 if they are accurate.  If a 45 year old contributed $20,000, then the W-2 should say $20,000.  His or her CPA would only deduct $18,000 on their 1040 due to the cap.  A $2,000 distribution must be processed by April 15th 2017 must be processed.  The participant will get a 1099 in January 2018 with a code P indicating the amount is taxable in the prior year.  No action is required, because the participant DID pay taxes in 2016 (i.e., because he only deducted $18,000 on his taxes).

[K2retire]

Austin, that's a great theory. But there are many people who prepare their own taxes and will deduct the full amount because they don't know any better.

[austin3515]

It's not a theory?  It's what the rules are?  And any tax software should do this automatically.  I have never prepared a tax return other than my own, and I've never exceeded the limit, so hard to say.  I do have a hard time believing a tax program would not limit each individuals 401k in accordance with 402g.

[jpod]

There is no tax deduction claimed on the return.  You report the Box 1 amount on the wages line on your 1040. 

[austin3515]

OK, but when I do my taxes I have to type in all of my Box 12 numbers, so the software WOULD know if I went over and presumably adjust accordingly.  Is your position that TurboTax would not know to cap the deduction at $18,000/$24,000?  I don't know one way or the other but I do find it hard to believe. If it's true, shame on them.

[Mike Preston]

I'm with Austin here.  Even the most rudimentary software should limit.

[K2retire]

23 hours ago, Mike Preston said:

I'm with Austin here.  Even the most rudimentary software should limit.

Agreed -- but some people still use paper and pencils!