return of excess 401(k) contributions

[lanman2000]

Hi there,

I have an interesting situation. While living in the US, I contributed to a 401(k) from January 1st through March 31st. They said I contributed too much during the first few months of 2009. I didn't go over the IRS max for 2009 of 16,500 BUT I had contributed the max within just 3 months so they determined via a "means test" that I had filled it up too quickly before leaving my job on March 31st (some weird arcane rule).

I moved from the US to Canada on May 31st of 2009.

Anyways, I received a distribution of the excess contribution on June 3rd, 2009 (3 days AFTER I moved to Canada). I received a 1099-R for it too. Since it was "excess contributions" to a 401(k) and not new income I assume that it is NOT reportable on my 2009 Canadian return. Correct?

Thanks in advance for your help.

[nelsona]

That is corredt, your 401(K) was a non-event in canada.

Thanks for the heads up on contributing "too quickly".

Do you have any diocumantation of what regs they were enforcing.

Were you getting other benefits that resulted in your total benefit package exceeding your actual income?

[lanman2000]

The regs they were enforcing are related to "nondiscrimination testing" that is mandated by the IRS. Every qualified plan must do this testing on a regular basis. I failed one of the tests because I was contributing > 125% of the average deferral of the other employees....

Here is a good explanation of the tests:
http://www.benefitplans.com/Tests/tests_overview.asp

Here are the ACP/ADP tests out of the IRS regs (ref: http://www.irs.gov/irb/2009-12_IRB/ar08.html)

Section 401(k)(3)(A)(ii) applies a special nondiscrimination test to the elective contributions of highly compensated employees, within the meaning of section 414(q) (HCEs). Under this test, called the actual deferral percentage (ADP) test, the average percentage of compensation deferred for HCEs is compared annually to the average percentage of compensation deferred for nonhighly compensated employees (NHCEs) eligible under the plan, and if certain limits are exceeded by the HCEs, corrective action must be taken. Pursuant to section 401(k)(8), one method of correction is distribution to HCEs of excess contributions made on their behalf.

Section 401(m) provides a parallel test for matching contributions and employee after-tax contributions under a defined contribution plan, called the actual contribution percentage (ACP) test. Pursuant to section 401(m)(6), one method of correction of the ACP test is distribution to HCEs of excess aggregate contributions made on their behalf.


Its such a common mistake (letting employee contribute too much) that the treasury has it in their fix it guide:
http://www.irs.ustreas.gov/pub/irs-tege ... stakes.pdf

[lanman2000]

[quote="nelsona"]That is corredt, your 401(K) was a non-event in canada.

Thanks for the heads up on contributing "too quickly".

Do you have any diocumantation of what regs they were enforcing.

Were you getting other benefits that resulted in your total benefit package exceeding your actual income?[/quote]

So this type of 401(k) distribution is a non-event in Canada? Is that a treaty provision?

[lanman2000]

[quote="lanman2000"][quote="nelsona"]That is corredt, your 401(K) was a non-event in canada.

Thanks for the heads up on contributing "too quickly".

Do you have any diocumantation of what regs they were enforcing.

Were you getting other benefits that resulted in your total benefit package exceeding your actual income?[/quote]

So this type of 401(k) distribution is a non-event in Canada? Is that a treaty provision?[/quote]


I think I found it under Article XVIII :

16. For purposes of this Article, a distribution from a pension or retirement plan that is reasonably attributable to a contribution or benefit for which a benefit was allowed pursuant to paragraph 8, 10 or 13 shall be deemed to arise in the Contracting State in which the plan is established.

Is this what makes it a non-event in Canada?

[nelsona]

I'm asking about the reason the 401(k) fund manager said it was an overpayment.

I already established it wasn't taxable in canada.

[nelsona]

The reason its not taxable in canada is because its is already included in your wages. It was a denied deduction.

[lanman2000]

[quote="nelsona"]I'm asking about the reason the 401(k) fund manager said it was an overpayment.

I already established it wasn't taxable in canada.[/quote]

Yes. Look up to my post at 2:31pm. I answered your question about why the 401(k) fund manager said it was an overpayment. I provided several links too. :)

[nelsona]

I guess its your insistyance on using quote bolcks which don't work that threw me off, I typically only open the last response.

[lanman2000]

no problem. I used the quote so you'd know what the heck i was talking about... but i guess that backfired! :)