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Question: Your client has 401(k) plans with two different employers and over-contributed to his plans. These were pre-tax deferrals. The return has been extended, and you have just discovered the excess contributions. How can this be fixed?

Answer: The excess pre-tax deferral is included on Line 1 of Form 1040, U.S. Individual Income Tax Return.

Whether a corrective distribution can be made depends on the timing. The regulations indicate “not later than the first April 15 (or such earlier date specified in the plan) following the close of the individual’s taxable year, the individual may notify each plan under which elective deferrals were made of the amount of the excess deferrals received by the plan” [Reg. §1.402(g)-1(e)(2)(i)].

After April 15 (or an earlier date if specified in the plan), the excess cannot be withdrawn and will be taxed again when it is allowed to be distributed (e.g., client retires) [Reg. §1.402(g)-1(e)(8)(iii)]. Regardless of whether the taxpayer can make a corrective distribution, the excess pre-tax deferral must be included in income for the year of deferral.