How and when do I report distribution of excess deferrals or excess contributions from my 401(k) Plan?
If your plan fails 401(k) testing, meaning that a Highly Compensated Employee (HCE) deferred too much according to testing rules, there must then be a corrective distribution of the excess deferral in order for the plan to remain qualified. Under current rules for 2009, corrections made in 2010 are taxable in the year of distribution. Distribution made later than 2 months after the end of the Plan Year, will also be subject to a 10% excise tax. If a participant has deferred more than the dollar limit under 402(g) then the excess contribution must also be distributed. The threshold was $16,500 for 2009, with an additional catch up contribution of $5,500 for participants who had attained age 50 during calendar 2009. This distribution is also taxable in the year of receipt. This correction must be made by April 15 following the year of contribution. Failure to do so could impact the qualified status of the Plan. Note that in no event is any adjustment supposed to be made to the W-2 of the
