Eligibility
Available to employers maintaining 401(k), 403(b), SEP, or 501(c)(18) plans that exceed annual contribution limits.
Frequently Asked Questions
Who is eligible for the Correction of Excess Plan Contributions?
Available to employers maintaining 401(k), 403(b), SEP, or 501(c)(18) plans that exceed annual contribution limits.
How does the Correction of Excess Plan Contributions work?
Avoid a 10% excise tax on excess 401(k) or SEP contributions by distributing the excess amounts and allocable income within 2.5 months (or 6 months for automatic contribution arrangements) after the plan year ends.
What law authorizes the Correction of Excess Plan Contributions?
The Correction of Excess Plan Contributions is authorized under IRC §4979 of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §4979
Source: Internal Revenue Code, Title 26, United States Code
§ 4979. Tax on certain excess contributions(a) General ruleIn the case of any plan, there is hereby imposed a tax for the taxable year equal to 10 percent of the sum of—(1) any excess contributions under such plan for the plan year ending in such taxable year, and
(2) any excess aggregate contributions under the plan for the plan year ending in such taxable year.
(b) Liability for taxThe tax imposed by subsection (a) shall be paid by the employer.
(c) Excess contributionsFor purposes of this section, the term “excess contributions” has the meaning given such term by sections 401(k)(8)(B), 408(k)(6)(C), and 501(c)(18).
(d) Excess aggregate contributionFor purposes of this section, the term “excess aggregate contribution” has the meaning given to such term by section 401(m)(6)(B). For purposes of determining excess aggregate contributions under an annuity contract described in section 403(b), such contract shall be treated as a plan described in subsection (e)(1).
(e) PlanFor purposes of this section, the term “plan” means—(1) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),
(2) any annuity plan described in section 403(a),
(3) any annuity contract described in section 403(b),
(4) a simplified employee pension of an employer which satisfies the requirements of section 408(k), and
(5) a plan described in section 501(c)(18).
Such term includes any plan which, at any time, has been determined by the Secretary to be such a plan.
(f) No tax where excess distributed within specified period after close of year(1) In generalNo tax shall be imposed under this section on any excess contribution or excess aggregate contribution, as the case may be, to the extent such contribution (together with any income allocable thereto through the end of the plan year for which the contribution was made) is distributed (or, if forfeitable, is forfeited) before the close of the first 2½ months (6 months in the case of an excess contribution or excess aggregate contribution to an eligible automatic contribution arrangement (as defined in section 414(w)(3))) of the following plan year.
(2) Year of inclusionAny amount distributed as provided in paragraph (1) shall be treated as earned and received by the recipient in the recipient’s taxable year in which such distributions were made.
(Added Pub. L. 99–514, title XI, § 1117(b)(1), Oct. 22, 1986, 100 Stat. 2461; amended Pub. L. 100–647, title I, § 1011(l)(8)–(11), Nov. 10, 1988, 102 Stat. 3470, 3471; Pub. L. 109–280, title IX, § 902(e)(1)–(3)(A), Aug. 17, 2006, 120 Stat. 1038.)
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