#Xclean vs excess code

In determining whether a participant has exceeded the IRC Section 402(g) limit, the participant should take into account any catch-up contributions that the he or she is eligible to make under IRC Section 414(v). Relationship with the catch-up limitation under IRC Section 414(v) Section 1.402(g)-1(e)(8)(iii) provides that distributions of excess deferrals after the correction period may be distributed from a 401(k) plan only when permitted under IRC Section 401(k)(2)(B). To the extent that a corrective distribution is not made within the correction period, the excess deferrals may not be distributed until a distribution is otherwise permissible under the terms of the plan, or the distribution is necessary to avoid plan disqualification under IRC Section 401(a)(30). This April 15th deadline is not postponed by extending the filing of the employee's federal income tax return. For example, excess deferrals made during 2016 must be distributed by April 15, 2017. Additionally, the corrective distribution must be made be made no later than April 15th following the close of the calendar year during which the excess deferral was made. The corrective distribution must include the amount of the excess deferrals, along with amounts earned on the excess deferrals during the calendar year during which the deferrals are made without regard to income earned during the “gap period” between the close of calendar year in which the excess contribution was made and the time of actual corrective distribution. The amount of the excess deferral will not be taxed twice if a corrective distribution is made. A participant who fails to receive a distribution of the excess deferrals does not receive basis in his pre-tax deferral account equal to the amount of excess deferrals. Unless timely distributed, excess deferrals are (1) included in a participant’s taxable income for the year contributed, and (2) taxed a second time when the deferrals are ultimately distributed from the plan. Excess deferrals may also impact other operational aspects of the plan, such as ADP testing. Correction for this purpose generally involves distributing the excess deferrals with allocable earnings, which is discussed in more detail below.Īlthough not the subject of this Snapshot, a plan that does not distribute excess deferrals risks plan disqualification. Excess deferrals may result in income tax liability to the participant unless they are corrected. A participant must aggregate all elective deferrals contributed to all of the plans in which he or she participates to determine if the IRC Section 402(g) limit has been exceeded.ĭeferrals in excess of the IRC Section 402(g) limit (which cannot be applied as IRC Section 414(v) catch-up contributions discussed below) are called “excess deferrals.” See Reg. Elective deferrals include both pre-tax salary reduction contributions and designated Roth contributions, which are contributed on an after-tax basis. The IRC Section 402(g) limits apply to elective deferrals made into various arrangements, including 401(k) plans, 403(b) arrangements, Salary Reduction Simplified Employee Pension Plans (SAR-SEPs) and Savings Incentive Match Plans for Employees (SIMPLE-IRAs). However, since the taxable year for most individuals is the calendar year, this Snapshot will refer to the IRC Section 402(g) taxable year as the calendar year.

#Xclean vs excess code

The Code and Regulations specifically refer to a participant’s taxable year, not the calendar year. IRC Section 402(g) limits the amount of elective deferrals a participant may exclude from taxable income in the participant’s taxable year. 401(k) Fix-It Guide: Elective deferrals weren't limited to the amounts under IRC Section 402(g) for the calendar year and excesses weren't distributed.7335 PDF, Alert Guidelines 12, Section 401(k) Requirements This Snapshot examines the consequences to a participant who makes excess elective deferrals to a 401(k) plan. IRC Section 402(g) limits the amount of elective deferrals a participant may exclude from taxable income in a calendar year.