402g Roth failure correction after April 15

A participant contributed $15,000 Roth deferrals to plan A and $10,000 Roth deferrals to plan B. Participant is not catch up eligible and the plans are unrelated.

Participant informed the plan sponsor today of the excess. 

My understanding is that the excess cannot returned after after April 15. However, the bundled recordkeeper (one of the large ones) says they will refund the excess anytime. This does not not seem right to me based on other threads (like the one below) but I cannot find specific authority for this stance. Is it just based on distributable event rules? 

Since neither plan fails 401(a)(30) can they return the excess after April 15? Can anyone provide authority for this?

Thank you!!

Edit: I finally found this in the EOB after I posted this question.

1.d. Are corrective distributions allowed after the April 15^th deadline? The last sentence of IRC §402(g)(2)(A) provides that a distribution described in IRC §402(g)(2)(A)(ii) (i.e., one made by the April 15^th deadline) may be made notwithstanding any other provision of law. What if the distribution hasn't been made by then? Treas. Reg. §1.402(g)-1(e)(8)(iii) provides that distributions of excess deferrals after the correction period may be distributed from a 401(k) plan only when permitted under IRC §401(k)(2)(B). Thus, unless the 401(k) participant has satisfied a permissible distribution event under §401(k)(2)(B) (e.g., attainment of age 59½ or severance from employment), the excess deferrals could not be distributed. An exception is made if the excess deferrals also cause the plan to violate the section 401(a)(30) limit. See the EPCRS Program and the discussion in Part E of this Section XI.

25 minutes ago, WCC said:

A participant contributed $15,000 Roth deferrals to plan A and $10,000 Roth deferrals to plan B. Participant is not catch up eligible and the plans are unrelated.

Participant informed the plan sponsor today of the excess. 

My understanding is that the excess cannot returned after after April 15. However, the bundled recordkeeper (one of the large ones) says they will refund the excess anytime. This does not not seem right to me based on other threads (like the one below) but I cannot find specific authority for this stance. Is it just based on distributable event rules? 

Since neither plan fails 401(a)(30) can they return the excess after April 15? Can anyone provide authority for this?

Thank you!!

 

The excess can be refunded after April 15.  The 401(a)(30) limit applies to an individual.  The participant will be taxed twice.  Tax was already paid at deferral since it is Roth.  Tax will be paid again at distribution because participant does not get credit for basis on the excess deferral.  Plan document should contain provision for excess deferral situations where participant also defers to an unrelated plan.

5 minutes ago, PensionPro said:

The 401(a)(30) limit applies to an individual. 

Doesn't 401(a)(30) apply to the plan, not the participant?

https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-elective-deferrals-exceeded-code-402g-limits-for-the-calendar-year-and-excesses-were-not-distributed

Timely withdrawal of excess contributions by April 15

• Excess deferrals withdrawn by April 15 of the year following the year of deferral are taxable in the calendar year deferred.
• Earnings are taxable in the year they're distributed.
• There is no 10% early distribution tax, no 20% withholding and no spousal consent requirement on amounts timely distributed.

Consequences of a late distribution

• Under IRC Section 401(a)(30), if the excess deferrals aren't withdrawn by April 15, each affected plan of the employer is subject to disqualification and would need to go through EPCRS.
• Under EPCRS, these excess deferrals are still subject to double taxation; that is, they're taxed both in the year contributed to and in the year distributed from the plan.
• For any distributions, attributable to elective deferrals designated as Roth Contributions, all distributions will be reported as taxable in the year distributed. Designated Roth contributions will have already been included in income in the year of deferral.
• These late distributions could also be subject to the 10% early distribution tax, 20% withholding and spousal consent requirements.

.....................

now, lets suppose instead the person was a participant in two different plans - unrelated companies, and they deferred 15,000 to each plan. 30,00 in total is in excess for the individual. however, neither plan is in violation for accepting too much so there is no distributable event.

The distributable event is the key. Is the participant otherwise eligible for a distribution from either plan?

6 minutes ago, K2retire said:

The distributable event is the key. Is the participant otherwise eligible for a distribution from either plan?

No

what 'should' happen - see page 20 (this is from the proposed regs, but this did not change in the final regs)

Designated Roth Contributions as Excess Deferrals

Even though designated Roth contributions are not excluded from income when contributed, they are treated as elective deferrals for purposes of section 402(g). Thus, to the extent total elective deferrals for the year exceed the section 402(g) limit for the year, the excess amount can be distributed by April 15^th of the year following the year of the excess without adverse tax consequences. However, if such excess deferrals are not distributed by April 15^th of the year following the year of the excess, these proposed regulations would provide that any distribution attributable to an excess deferral that is a designated Roth contribution is includible in gross income (with no exclusion from income for amounts attributable to basis under section 72) and is not eligible for rollover. These regulations would provide that if there are any excess deferrals that are designated Roth contributions that are not corrected prior to April 15^th of the year following the excess, the first amounts distributed from the designated Roth account are treated as distributions of excess deferrals and earnings until the full amount of the those excess deferrals (and attributable earnings) are distributed.

...............

in other words the excess 'needs' to be segregated (or tracked or something) from the Roth account in one of the plans. and since earnings are involved you would want it separate, I'm sure.

since it was Roth, the person already paid taxes in 2017, and eventually when taking a distribution pays taxes again.

otherwise, someone could defer 24,,000 into Roth into each plan. oh I have excess but I already paid taxes in 2017. now the excess continues to collect earnings, and if not removed from the Roth account then when the person retires he gets all that tax free. a great scam, works real well in a safe harbor plan in which there is no ADP testing!

the problem, if it is in 2 plans separate plans, run by 2 different TPAs, how would anyone know? except for ethics on the part of the individual....

402A_Proposed_Regulations_Roth.pdf

this is very helpful!!! thank you

to tell you the truth, in all the years I have done plans I never once have had a plan with excess roth deferrals ( either in single plan or across multiple plans)

but your question raised my curiosity, since I haven't come across it before -  it took a little research to put the pieces together and come to the logical conclusion of why things are done this way, so I give a bit of thanks to you.

Tom Poje, I found this thread interesting, too.  I'm thinking the "fix" for the ethical TPA  is to simply move the excess deferral and associated earnings to the pre-tax deferral account.  Do you agree?

From a tax reporting standpoint, IRS will receive two Forms W-2 indicating total Roth deferrals of $25,000 for this individual.  So at this point, supposedly they are aware of the excess deferral.  If the excess deferral had been distributed timely, a 1099-R would follow in the next tax year reporting the $7,000 distribution as non-taxable excess deferral with a Code P (??)  Since it was not distributed timely, and thus not at all in this case, no further tax reporting will follow.  I doubt this would raise a flag though. 

Seems so unfair to the individual to pay tax on the money twice, for just being a few weeks late in discovering the issue, but then again, very unfair to never pay tax on these earnings that could accumulate to quite a bit in 30 years!

I would agree that would probably be the best solution, simply move the money.

and as I recall, it's the excess plus gap period income on any excess deferral (Roth or otherwise). same idea, participant should not get the 'free' earnings  on Roth.

I have never seen the amount of excess deferrals as being large, but agree it seems unfair to double tax, but the regs have been that way as far back as my wee brain will go.