Excess Employer Contribution - Solo 401k

Due to unexpected W-2 income in 2020, I have excess employer non-elective contributions to my solo traditional 401k. I am a sole proprietor. Any advice on how to handle this situation with the IRS would be appreciated. I have not filed my 2020 taxes yet.

-  2020 tax year 401k excess employer non-elective contributions of $3984

W-2 income from another employer should not affect your employer contributions to your own 401(k).  Please provide more info.

The employer contributions were made based on the assumption that all my 2020 income would be reported on a 1099 NEC. Unfortunately, the medical center where I am an independent contractor paid a portion of my total income on a W-2.

What caused the excess? Was it a 415 (annual additions) excess, meaning that the sum of all contributions to your account was greater than your net earned income? Or did the total employer contributions exceed 25% of your net earned income, exceeding the deduction limit? Or was it something else?

When was the deposit made (2020 or 2021)?

The excess deposit was made in 2020 unfortunately. The "employer" contributions exceeded the 25% self-employed contribution limit after deducting one-half of self-employment tax.

Is having the broker recharacterize the excess "employer" contribution (plus earnings) from 2020 to 2021 an option?

If you exceeded the deduction limit, then the excess can't be removed from the plan. Since it was deposited in 2020, it can't be counted as a 2021 contribution either. What will happen is that the amount in excess of 25% of net earned income is not deductible for 2020, and it will have to be carried forward and deducted in 2021, and will count against your 2021 deduction limit. There is also an excise tax of 10% on the non-deductible contribution.

3 hours ago, H2202 said:

Is having the broker recharacterize the excess "employer" contribution (plus earnings) from 2020 to 2021 an option?

Not a legal one.