Over-Contribution to 403(b) Due to Employer Mistake

By | February 1, 2014

403(b) Over-Contribution Question

In 2013 I aimed to contribute exactly the limit to my 403(b). I filled out a form with how much I wanted to go in each month and the maximum I wanted to contribute to for the year. Despite this, I contributed $17510.

 

Over-Contribution to 403(b) Due to Employer Mistake

I reported this to HR and payroll right away and they came up with a plan to fix it. They ended up cutting me a check for $10, said they’d get it pulled out of my account, and said nothing was reported to the IRS so that should settle it. Well I just got my W2 and box 12 lists $17510 in contributions (some pre-tax, some Roth).

 

Answer to over-contribution for 403(b) Question:

Your aren’t supposed to simply withdraw the excess and then “sweep it under the rug” by adjusting your records to show it never happened. However that is exactly what happens most of the time, usually either due to ignorance of the rules or intentionally so as to avoid an enraged plan participant who “just wants it to go away” rather than report the excess and then the excess correction. It really feels like the Wild West in the retirement plan administration world because there really are more people working in this field that don’t know than do know and the ones that do know blatantly break the rules to avoid conflict with the plan participants who rarely ever know or care what these rules are.

 

What to do with 1099-R?

In the event that they actually properly corrected this as an excess contribution, any 1099-r they issue will be received next January and show an excess contribution correction done in 2014 for the prior year. You would file those with your taxes next year.

 

Excess Contribution Correction

The important thing is to have them clarify if they did an excess contribution correction (which will result in a 1099-R) or if they just “corrected” it on their system and will report your contributions for 2013 as if the excess never happened. The first data transmission to the IRS hasn’t happened yet and many places will simply wipe their records of any errors so that the IRS never even knows they occurred if they catch the mistake before the data is sent to the IRS.