Participant deferred from severance--what kind of refund

Participant only received severance on his 2018 W2.  He deferred $24,500 from it.

So, the money has to be refunded.  What excess is it?  402(g) or 415?

If forced to choose, 402(g).

Why is that, Mike?

I would lean to 415 b/c everything is taxable in '19.

I'd have said you can't consider it a 402(g) violation - 402(g) is a dollar amount limit, and as long as you don't exceed that, it isn't a 402(g) violation. I'd vote for 415 violation.

7 hours ago, Mike Preston said:

If forced to choose, 402(g).

I've been told that I'm not good at math and should leave the math to others (which is often the case), but I am good at run-on sentences, so assuming the entire amount being described is pure severance pay, such as that which is paid from a severance plan, then it seems to me that 415 compensation is zero, and that the 415 annual addition limit would therefore be zero, and if the plan document includes in compensation (for deferral purposes) only such elements of post-severance pay (if any) that are permitted under the final 415 regulations (which is likely), then plan compensation for purposes of making deferrals, it seems to me, should also be zero, and deferrals should therefore be limited to zero as a matter of plan administration even without regard to 415 or 402(g) (though I have made assumptions about the plan's language in that regard).   With that assumption in mind, if forced to choose between 415 and 402(g) (as opposed to choosing self-correction for an administrative error, if there is one), I'm with Belgarath.

But is one ever forced to choose?  If so, what are the differences between them?  I presume you are talking about different shades  of correction under EPCRS.

For one, the taxation.

Usually, if refunded before April 15, the base excess is taxed in the previous year and the earnings are taxed currently.  For 415, the entire amount is taxable in the year its distributed.

I agree 100% of zero is zero and that is both his 402(g) and 415 limit with respect to this plan.

Maybe it is helpful, and maybe not, but I always say first: what does the document say, if anything? I would think (hope) that the document would specify the order of correction.

I do not see anything in my doc about when there are multiple failures, or any sort of order.

It says 415 excesses are corrected under EPCRS and, later, excess deferrals have to be out by 4/15.

This is from the IRS Examination Guidelines:

"Contributions do not fail to be annual additions merely because they are excess deferrals, excess contributions, excess aggregate contributions or merely because excess contributions are corrected through distribution or recharacterization. See 26 CFR 1.415(c)-1(b)(1)(ii). However, excess deferrals distributed in accordance with 26 CFR 1.402(g)-1(e)(2) or (3) are not annual additions. See 26 CFR 1.415(c)-1(b)(2)(ii)(D)."

https://www.irs.gov/irm/part4/irm_04-072-007