Over Contributed Too Much to Trad Solo 401k

Financial Planning Foolish 401(k)s
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Link to the removal of excess form TD Ameritrade sent me:
https://www.dropbox.com/s/72fmfmtxnruefux/Removal%20of%20Exc…

Over Contributed Too Much to Traditional (not roth) Solo 401k $1,800, need remove but account value $1,500 currently

Ok so I’m an idiot and estimated my employer profit share solo 401k contribution wrong and when I did my taxes it worked out that I can only contribute $100 to it, but I contributed $1,900 a few months ago.

Current account value is $1,500

I need to remove $1,800 and just have the $100 as contributed like my taxes say.

My broker has the removal of excess form but I just don’t know what to do in this situation I created for myself.

There are 2 spots on the form that confuse me.

The first is it asks for “the amount of excess to be removed (this is the principle amount)”

The second is an option further down on the page “client calculates earnings and a box to check ‘earnings’ or ‘loss’” and then enter the amount

directly below that still part of the same section it says “net excess amount to be removed (contribution amount plus earnings or losses” and it asks for a number to be entered.

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Over Contributed Too Much to Traditional (not roth) Solo 401k $1,800, need remove but account value $1,500 currently

Ok so I’m an idiot and estimated my employer profit share solo 401k contribution wrong and when I did my taxes it worked out that I can only contribute $100 to it, but I contributed $1,900 a few months ago.

Current account value is $1,500

I need to remove $1,800 and just have the $100 as contributed like my taxes say.

No, actually, assuming that the original $1900 was the only money in the account, you need to remove 18/19s of the value as of the date that the excess is removed, leaving 1/19 in as your account value. You did contribute $100, but since the account value has dropped, the value of your $100 contribution is now $78.95 If there was other money in the account, then things get more complicated.

The first is it asks for “the amount of excess to be removed (this is the principal amount)”

There, fixed that for you. This is $1800, and put the date that the contribution posted on the line for the date just below it.

The second is an option further down on the page “client calculates earnings and a box to check ‘earnings’ or ‘loss’” and then enter the amount

directly below that still part of the same section it says “net excess amount to be removed (contribution amount plus earnings or losses” and it asks for a number to be entered.

Based on your posts about the Roth 401(k) on the 401(k) board and this post, it seems that your accounts are apparently pretty volatile. Therefore, I would suggest choosing the option of “TD Ameritrade calculates earnings” and not trying to calculate them yourself. That way, the calculation will be done correctly as of the date that the contribution is removed.

The problem with telling them a specific dollar amount today on a volatile account: If you tell them that they should remove $1421.05, and the account changes in value between when you send the form in and when they remove the contribution, you will either still have an excess contribution (if the account value went up) or you will have removed too much (if the account value went down).

AJ

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very very volatile and I like that :slight_smile:

and thank you so much for the help, perfect explanation!

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The problem with telling them a specific dollar amount today on a volatile account: If you tell them that they should remove $1421.05, and the account changes in value between when you send the form in and when they remove the contribution, you will either still have an excess contribution (if the account value went up) or you will have removed too much (if the account value went down).

I recall reading before about carrying over the excess into the next year. Is that no longer an option?

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I recall reading before about carrying over the excess into the next year. Is that no longer an option?

That’s possible for IRAs, if you pay a 6% excess contribution penalty for each year. This is the employer contribution for a solo 401(k). I don’t believe that with a 401(k) that it’s possible to carry over excess contributions, either from the employee or the employer.

AJ