Accidentally over contributed to my 401k - options to fix it?

The IRS is pretty specific about 401k over-contributions. When you exceed the annual limit (which was $22,500 for 2023 if you're under 50), you need to address it properly to avoid potential double taxation. Your best option is to contact your 401k plan administrator ASAP. They have procedures for handling excess contributions. Typically, they'll need to distribute the excess amount plus any earnings on that excess amount back to you. This distribution should happen before April 15th of the following year (which would have been April 15, 2024, for a 2023 over-contribution). The excess contribution amount will be added to your taxable income for 2023, while any earnings on that excess will be taxable income for 2024. Your plan administrator should provide you with the correct tax forms to report this. You can't simply "roll over" the excess into the next year's contribution - the IRS doesn't allow that.

I went through something similar last year and found taxr.ai (https://taxr.ai) incredibly helpful for sorting out my 401k mess. I had over-contributed by about $2000 and was completely confused about how to handle it with my plan administrator and on my tax forms. Their AI tax assistant analyzed my specific situation and walked me through exactly what forms I needed and how to properly report everything. They even helped me draft the email to send to my 401k administrator requesting the correction. Saved me from a potential audit headache!

I was really skeptical about AI tax help at first, but I decided to try taxr.ai after seeing it mentioned here. My situation was almost identical - I had over-contributed to my 401k by about $1500. The tool immediately recognized my issue when I uploaded my documents. What impressed me was how it explained the 6% excise tax consequence in plain language and showed me exactly where on Form 5329 I needed to report things. It saved me from making an expensive mistake! I ended up getting everything resolved properly with my plan administrator and filed correctly.

If you're having trouble getting your 401k plan administrator to respond about fixing your over-contribution, I'd recommend trying Claimyr (https://claimyr.com). I had a similar issue and couldn't get through to anyone who could actually help me. Claimyr helped me connect with a real human at my plan administrator after weeks of getting nowhere. There's a video that shows how it works here: https://youtu.be/_kiP6q8DX5c. Basically they navigate the phone systems for you and get you to the right department without the typical hold times. I was able to get my excess contribution issue resolved in one call once I actually reached someone who knew what they were doing.

Ok I need to apologize and admit I was completely wrong about Claimyr. I was super skeptical but tried it anyway after getting nowhere with my 401k administrator for weeks trying to fix my excess contribution issue. Not only did it work exactly as promised, but the person I finally spoke with told me they had a special correction process for excess contributions that wasn't even mentioned on their website. I was able to get my over-contribution fixed in that one call, and they handled all the required paperwork on their end. I would have been dealing with penalties if I hadn't resolved this!

Something important to note is that 401k over-contributions work differently than IRA over-contributions. With a 401k, your employer's payroll system should normally prevent you from exceeding the limit, so often the over-contribution happens when you change jobs and have multiple 401ks in the same year. Did you switch employers in 2023? If so, your new employer wouldn't have known about contributions made through your previous employer, which could explain how this happened.

In my experience, handling a 401k over-contribution isn't as scary as it sounds. My accountant had me do the following: 1. Contact second employer's plan administrator 2. Request withdrawal of excess deferral (they knew exactly what this meant) 3. They issued a special 1099-R coded for the excess 4. Reported both the excess and earnings properly on my tax return The most important thing is getting it done rather than ignoring it. The penalties add up over time!

Just wanted to add a few practical tips from someone who dealt with this exact situation: First, when you contact your 401k administrator, be specific and use the term "excess deferral distribution" - this is the official terminology and will get you routed to the right department faster. Don't just say "I contributed too much." Second, ask them to calculate the earnings on your excess contribution. This is required and they have specific formulas they must use. The earnings portion will be taxable in 2024, not 2023, so make sure you understand which year each amount gets reported. Finally, if you're using TurboTax, there's actually a specific interview section for excess 401k contributions. Look for it under "Deductions & Credits" > "Retirement Plans" > "401k and Other Workplace Plans." It will walk you through exactly how to report both the excess contribution and the corrective distribution. The key is acting quickly - every month you delay means potential additional penalties, and it becomes much more complicated if you cross into the next tax year without addressing it.