Lion EA Posted June 6, 2014 Report Share Posted June 6, 2014 Client worked for three companies during 2013 (on extension). At the first two, he contributed to their 401(k) plans and far exceeded the limit. No longer at either of those companies. I understand the penalty/form/etc. Is there any advantage to taking out the excess at this late date? Does it get penalized again in 2014 if he does NOT take it out? Does it all go away if he contributes less in 2014? The more I try to read the more confused I get. Quote Link to comment Share on other sites More sharing options...
Catherine Posted June 6, 2014 Report Share Posted June 6, 2014 He can leave the excess in the accounts and NOT put in any more until he reaches the point where he won't be over-contributing for 2014 (2015, whatever - you said "far exceeded" but no numbers). Penalty on 2013 only IF he's under the contribution limit for 2014. Penalty for 2014 too (but on less overcontribution) if he's over the limit for 2014 and it spills into 2015. Make any more sense now? 1 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted June 7, 2014 Author Report Share Posted June 7, 2014 Thanx, Catherine. That was what I was thinking, but the legalese was making me go around in circles. Your plain English helped. He was thousands over, but not more than double. He can eat that up during 2014. And, if he's over what's left for him to contribute in 2014, he CAN take out the excess now while it's still 2014, yes? So, no 2014 penalty. But, there'll be a 2013 penalty no matter what, right? He'd had to have taken out the excess prior to 15 April to avoid a 2013 penalty, yes? Quote Link to comment Share on other sites More sharing options...
Catherine Posted June 7, 2014 Report Share Posted June 7, 2014 Yes, he can take the excess (including growth!) for 2014 out any time between now and 4/15/15. Yes, there _will_ be a 2013 penalty as he didn't get the funds out before 4/15/14. I've had to explain this to a couple of clients over the years, some of whom made the 4/15 withdrawal deadline and some of whom did not. So I got to bang my head against the legalese until it made sense (ouch! - still smarts, lol). Glad I could save you a tiny bit of that effort! 1 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted June 7, 2014 Author Report Share Posted June 7, 2014 Thank you, Catherine, for taking some of the bruises on this! Hadn't had this come up before, and the penalties are big so wanted to do lots of reading before I talk to the client. He will get a double whammy by being taxed again when he takes it out in retirement, right? 1 Quote Link to comment Share on other sites More sharing options...
Catherine Posted June 7, 2014 Report Share Posted June 7, 2014 Yes; double whammy. I've run into this with two sets of clients: ( a ) high-earners who switch jobs mid-year-ish -- in general, they've come close to max on the 401k _before_ the switch, and so the new company set-aside puts them over the limit (as no one in HR ever thinks to ask/warn), and ( b ) those who contribute to 401k's at the office but have a small company on the side - and try to set aside even more for their retirement (no issue there!) and the nice folks at the bank where they have the business checking account tout their "safe harbor 401k" for small businesses - again, without asking any questions. Neither of those clients ever call me _first_ so I just get to tell them the bad news and walk them through undoing as much of the damage as possible. Sigh. 1 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted June 7, 2014 Author Report Share Posted June 7, 2014 This was an (a). His wife usually sends me his check stub in the fall, because one year his company stopped withholding for CT at some point. The 401(k) was fine on the check stub she sent last fall, but he'd had two high-paying jobs earlier in the year. I knew he quit a job and consulted for awhile, but didn't know he was an employee earlier in the year. Sigh. 1 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted June 7, 2014 Report Share Posted June 7, 2014 This was an (a). His wife usually sends me his check stub in the fall, because one year his company stopped withholding for CT at some point. The 401(k) was fine on the check stub she sent last fall, but he'd had two high-paying jobs earlier in the year. I knew he quit a job and consulted for awhile, but didn't know he was an employee earlier in the year. Sigh. This is the reason you charge exorbitant fees to this client. You helping him fix the mess he made without consulting you first, makes your knowledge and experience worth at least double. Hold you head high, smile and write the bill!!! 2 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted June 8, 2014 Author Report Share Posted June 8, 2014 I do charge this couple a lot. Partnership return and personal and a couple of sons who sometimes have returns if they earn enough that year. As a family, one of my priciest invoices. At least in the top five. It's up a bit this year already, because they added NY back into the mix, two states now. Yep, price increase for them. 3 Quote Link to comment Share on other sites More sharing options...
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