Wrong Contribution Year

[S.Ryon]

We received our Fidelity statement showing we were $11k over the 401k limit for 2022. I diligently manage our money and didn’t understand the discrepancy. After digging, I see that the check written in 3/2022 was actually deposited as a 2022 contribution instead of 2021. Our accountant told us the amount to contribute at tax filing time. This mistake pushes us over the limit for 2022, as we maxed out the 401k in 2022.

Lesson learned… ALWAYS write the contribution year in the memo instead of verbally telling the Fidelity employee.

Does anyone have any advice on how to get this reversed and applied to 2021? Or will it be returned as taxable income? I’d really love any help or advice on getting this unraveled.

Thank you so much in advance!

[Tim]

Then, is your 2021 1040 tax return wrong? Sounds like it.

[S.Ryon]

Then, is your 2021 1040 tax return wrong? Sounds like it.

Our accountant told us when he filed our taxes how much to contribute so we did it at tax filing. I’m guessing it is incorrect as it says we contributed in 2021 but it was not correctly applied. Do you know next steps?

[Bmac]

I'm sure spiritrider will correct some of this, but I believe you will need to have Fidelity remove the excess contributions plus any earnings on the excess contributions made in 2022. You will owe tax plus 10% penalty on the excess earnings on your 2023 tax return (form 5239). And, if this was filed as a deductible contribution on your 2021 tax return, that would need to be amended with payment of difference in your 2021 tax due.

[spiritrider]

If we are talking non-elective profit sharing contributions. What year Fidelity records the deposit or date you write on the check are not relevant. As long as the 3/22 contribution for the 2021 tax year was deducted on your 2021 tax return. It applies to that tax year.

[S.Ryon]

spiritrider this is in a Solo 401k (Fidelity “Profit Sharing Keogh”). Fidelity shows us $11k over the 2022 limit and directed us to the EPCRS link for a correction. I am confused on next steps and do not want to pay any taxes or fines for the overage.

What next steps would you advise?

[spiritrider]

If the circumstances are as you say, Fidelity is making a statement only based on information they have. They do not know what tax year you deducted any of the contributions for.

See IRS Publication 560, Chapter 4, Page 15:

When Contributions Are Considered Made
You generally apply your plan contributions to the year in which you make them. But you can apply them to the previous year if all the follow-
ing requirements are met.

1. You make them by the due date of your tax return for the previous year (plus extensions).
2. The plan was established by the end of the previous year. (N/A, TCJA)
3. The plan treats the contributions as though it had received them on the last day of the previous year.
4. You do either of the following.
   1. You specify in writing to the plan administrator or trustee that the contributions apply to the previous year.
   2. You deduct the contributions on your tax return for the previous year. A partnership shows contributions for partners on Form 1065.

Even if you specified the contributions were for the current year. Deducting the contributions on your tax return for the prior year overrides that election.

Bottom Line:

• If your 2021 contributions (for the 2021 tax year) and any 2022 contributions for the 2021 tax year by the tax filing deadline including extensions were deducted on your 2021 tax return. You do not have excess 2021 employer contributions if those contributions are <= your 2021 maximum allowed employer contributions.
• As long as the 3/22 contribution was fully deducted for the 2021 tax year. None of it is included in your 2022 contributions. You do not have excess 2022 employer contributions. As long as your other 2022 contributions plus 2023 contributions for the 2022 tax year are <= your maximum 2022 employer contributions.

[S.Ryon]

Thank you so much for this detailed explanation!! I really do appreciate it!