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Question
do roth 401k excess contributions get taxed
AI accountant’s answer:
If you make excess contributions to your Roth 401(k), you need to withdraw the excess contributions, along with any earnings on those contributions, before the deadline to avoid potential penalties. The deadline is typically your tax return due date, including any extensions, for the tax year in which the excess contributions were made. If you withdraw the excess Roth 401(k) contributions and earnings before the deadline, you'll generally be taxed on the earnings portion of the withdrawal in the year you made the excess contribution. The original excess contributions are not taxed, as Roth 401(k) contributions are made with after-tax dollars. However, if you fail to withdraw the excess contributions and earnings by the deadline, you may face a 6% excise tax on the excess contributions each year until they are either withdrawn or used up through increased contribution limits in future years. Be mindful that excess contributions can complicate your tax situation, so it's essential to address them and ensure your contributions stay within the applicable limits.
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Ieva Ivanauskas, EA
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