Excise tax applicable in relation to excess 403(b) deferral?

[Guest Diane DuFresne]

It was just discovered that a 403(B) participant over contributed $500 for 1999 (deferred $10,500 vs. $10,000) and the plan is refunding the $500 in December of 2000 (under APRSC). My understanding is that the participant will be taxed twice on this over contribution--once in 1999 (year of deferral) and again in 2000 (year of distribution).

My questions are these: 1)Is this excess deferral subject to an excise tax? Would a Form 5330 need to be filed? If so, would it be filed by the participant or by the employer? 2)Are related earning also required to be refunded? If yes, only taxable in the year of distribution?

Any comments would be appreciated.

Thanks,

Diane

[Carol V. Calhoun]

There is an excise tax under Code section 4973 which applies to contributions to a 403(B)(7) custodial account (but not to a 403(B) annuity), to the extent in excess of the 403(B) and/or 415 limits. However, it does not appear to me to apply to contributions in excess of the 402(g) limits, unless they also violate one of the other limits.