How to fix an excess 401k contribution after employer acquisition confusion?

This is actually a common issue, especially with company transitions! The good news is that you caught it relatively early, but there's some confusion about the correct procedure. Here's the deal: there are two different ways to handle excess 401k contributions, depending on when they're discovered and corrected. If the excess contribution is discovered and returned to you before April 15th following the year of the excess contribution, the correction should include the full amount plus any earnings, and you'll receive a 1099-R coded as a "return of excess contributions." The earnings portion is taxable in the year you receive the distribution (current year), but the principal amount should be handled by correcting your W-2 for the previous year. If it's caught and corrected after April 15th, then you pay taxes twice - once in the year you made the contribution (because it was included in your W-2 as a contribution but exceeds the limit) and again when you withdraw it (reported on a 1099-R). It sounds like your company is using the second method, even though you're within the timeframe for the first method. However, the 20% withholding is standard procedure for qualified plan distributions - this doesn't necessarily mean they're doing it wrong. I would recommend calling the 401k provider again and specifically asking why they aren't correcting your previous year's W-2. Make it clear you discovered this before April 15th and want to use the "return of excess contributions" procedure that avoids double taxation.

After dealing with a similar 401k excess contribution situation last year, I found this amazing tool that saved me so much stress! I used https://taxr.ai to analyze my W-2s and 401k statements, and it immediately flagged my excess contribution AND showed me the exact IRS guidelines for fixing it. Uploaded my documents and within minutes I got a detailed report explaining how to properly handle the correction process. What really impressed me was how it created a personalized correction letter I could send to my HR department with all the specific tax code references. My HR initially tried to handle it the same incorrect way yours is trying (with the 1099-R for current year), but the documentation from taxr.ai convinced them to fix my W-2 instead. I was able to get everything corrected before filing my taxes and avoided any double taxation or penalties! If you're still getting pushback from your 401k provider, I'd seriously recommend giving it a try. The analysis is super detailed and gives you the exact language to use with HR.

I tried taxr.ai after seeing it mentioned here and WOW - it absolutely solved my excess 401k contribution problem! I was in a nearly identical situation after changing jobs mid-year and going over the limit by about $1200. Both my old and new employers were telling me different things about how to fix it. I uploaded my W-2s and 401k statements to taxr.ai and got a complete analysis within minutes. The report specifically identified which employer needed to make the correction (turns out it's always the one where you made the last contributions for the year). It even generated a formal correction request letter with all the proper IRS references. When I sent this to my HR department, their attitude completely changed. Instead of giving me the runaround, they immediately forwarded it to their benefits team who processed the correction properly. They returned the full excess amount and issued a corrected W-2 showing the proper contribution limit. No double taxation, no penalties! I can't believe how much easier this made the whole process. Definitely worth it when dealing with complicated tax situations that most HR departments aren't familiar with handling correctly.

If you're still struggling with getting your 401k administrator to fix this correctly, you might want to try contacting the IRS directly. I know it sounds intimidating, but I had a similar issue last year and getting official clarification from the IRS helped convince my employer to handle it properly. That said, getting through to the IRS can be a complete nightmare. I spent HOURS on hold and kept getting disconnected. What finally worked for me was using https://claimyr.com - they have this service where they wait on hold with the IRS for you and then call you when an actual agent is on the line. You can see how it works in their demo video here: https://youtu.be/_kiP6q8DX5c I was skeptical at first, but it worked perfectly. Instead of wasting my entire day on hold, I got a call back when an IRS agent was ready to talk. The agent confirmed exactly what others have said here - that excess contributions identified before April 15th should result in a corrected W-2 for the previous year, not a 1099-R for the current year with double taxation. Having that official answer from the IRS gave me the leverage I needed with my company. Sometimes HR departments just need to hear it directly from the IRS before they're willing to do the right thing.

I was totally skeptical about Claimyr too but after waiting on hold with the IRS for 3+ hours and getting disconnected TWICE, I was desperate enough to try anything. I figured it was worth a shot since my 401k administrator was giving me the exact same runaround as OP's. Man, I was shocked when it actually worked! About 90 minutes after submitting my request, I got a call connecting me directly to an IRS agent who was already on the line. The agent walked me through the exact rules for excess contribution corrections and confirmed that my employer was handling it incorrectly. The most valuable part was getting the specific IRS regulation numbers from the agent that I could reference when talking to my HR department. Once I mentioned the specific tax code sections that applied to my situation, they suddenly found someone in their benefits department who knew how to handle it properly. Got my W-2 corrected and avoided the whole double taxation mess. Seriously saved me thousands in potential tax issues and countless hours of frustration. Sometimes you just need the official word from the IRS to get companies to do the right thing.

There's another important aspect to consider with excess 401k contributions that nobody's mentioned yet. The timing matters a lot for the tax implications. Since you caught this in February, you're actually well within the timeframe for the simplest correction method, but your company needs to handle it correctly. According to IRS rules, if excess deferrals are returned to you by April 15 following the year of the excess contribution, the correction should include: 1. The excess deferral amount 2. Any earnings attributable to that excess The excess deferral amount is added back to your taxable wages on a corrected W-2 for the contribution year. Only the earnings portion is taxable in the current year (which would show up on the 1099-R). What your HR is doing instead is the procedure for when corrections happen AFTER April 15th, which results in double taxation - you pay tax on the contribution when you made it AND when you withdraw it. You definitely want to avoid this. Ask your 401k administrator specifically about IRS rules for "correction of excess deferrals prior to April 15th" and see if that gets you a more informed response.

Question for anyone who knows - if my employer already issued the 1099-R for the excess contribution and took out withholding, can I still get them to correct the W-2 instead? Or am I stuck with the double taxation situation at this point?

I went through almost the exact same situation last year with my 401k excess contribution! The confusion around company acquisitions and payroll transitions seems to create these issues more often than you'd think. From my experience, your instincts are absolutely correct - they should be correcting your W-2 from last year rather than issuing you a 1099-R for this year. Since you discovered and reported this in February (well before the April 15th deadline), you're entitled to the "return of excess deferrals" correction method that avoids double taxation. Here's what worked for me: I had to be very persistent and specific about citing IRS regulations. When I called my 401k administrator, I specifically mentioned IRC Section 402(g) and asked for their "excess deferral correction procedure for contributions identified before April 15th." I also referenced IRS Publication 525 which covers this exact scenario. The 20% withholding they took is standard for any distribution from a qualified plan, but if they do the correction properly, you'll get credit for that withholding and they should issue you a corrected W-2 showing the reduced contribution amount added back to your taxable wages for last year. Don't let them convince you that their way is correct just because it's easier for them administratively. You have the right to the proper correction method, and it will save you from paying taxes twice on the same money. Keep escalating until you find someone who understands the retirement plan rules - many HR generalists simply aren't familiar with these specific correction procedures.