What happens if an employee defers more than the maximum dollar deferral limit?
If an employee defers more than the maximum limit, $15,500 for 2007, ($15,500 for 2008; $20,500 in 2008 for a participant who is eligible to make catch-up contributions) he or she must withdraw the excess deferral amount and any associated earnings on this amount by April 15th following the calendar year to which the deferrals relate. The excess deferral amount taken out is included as additional taxable wages earned in the year originally deferred. Any income earned on the excess deferral taken out is taxable in the tax year in which it is taken out. These distributions taken timely by the April 15th deadline are not subject to the additional 10% tax on early distributions. Deferrals not withdrawn by the April 15th date, though still treated as earned and taxable in the year originally deferred, will be included in income again in the year distributed and will be subject to the additional 10% tax. Furthermore, the excess deferrals will be subject to the traditional IRA limits and may
