March 26, 2021

Excess deferral

Your Guide

Definition

Salary deferral contributions, contributions are limited to the lesser of the IRC § 402(g) limit or 100% of compensation. Salary deferral contributions in excess of this limit are excess deferral contributions.

The 402(g) limits are as follows:

YearIRC § 402(g) LimitCatch-up contribution limit
2014$17,500$5,500
2015$18,000$6,000
2016$18,000$6,000
2017$18,000$6,000
2018$18,500$6,000
2019$19,000$6,000

2020

$19,500

$6,500

2021

$19,500

$6,500

Potential COLA increase in increments of $500 for tax years beginning 2006 for salary deferrals and catch-up contributions.

Referring Cite

IRC § 402(g)(3)

Additional Helpful Information

    • Excess deferral contributions  should be corrected by April 15 following the close of the taxable year. The  distribution should include any income allocable to the excess
    • Failure to remove the excess deferral by the deadline could result in double-taxation to the employee

Written By

Retirement Dictionary Staff

Frequently Asked Questions Regarding

You can change the character of your IRA contribution from a Traditional IRA contribution to a Roth IRA contribution by recharacterizing the amount. The recharacterization must include any net-income-attributable (NIA) to the contribution. This means that the amount recharacterized must have attributable earnings added or losses subtracted. This will, in effect, treat the contribution as if it was made initially to the Roth IRA. The original contribution will be reported on IRS Form 5498 for the traditional IRA. For the recharacterization, a 1099-R will be issued for the amount moved from the Traditional IRA and a 5498 will be issued for the amount recharacterized to the Roth IRA.

Eligibility for Roth IRA Contribution

Bear in mind that in addition to having eligible compensation ( as is also required for traditional IRAs) , you are eligible for a Roth IRA contribution only if your modified adjusted gross income (MAGI) does not exceed certain amounts.

These MAGI limits can be found here https://www.retirementdictionary.com/definitions/rothira .

Please discuss the matter with your tax professional, to ensure that the transactions are reported correctly on your tax return, and for help in determining which type of contribution (traditional IRA or Roth IRA) is more suitable for you.

The deadline for recharacterizing a contribution is your tax filing due date for the year for which the contribution was made, including extensions.  If you file your tax return or file for an extension by your tax filing due date, you receive an automatic 6-month extension to complete your recharacterization.  See the definition of recharacterization for more information https://www.retirementdictionary.com/definitions/recharacterization

If you use tax-preparation software, it should calculate the amount that you are eligible to contribute. If you want to calculate the amount manually, use the following steps:

  1. Subtract the lower dollar amount in the range from your MAGI.
  2. Divide the result by the difference between the lower amount in the range and the higher amount in the range.
  3. Multiply the result by the maximum contribution amount in effect for you for the year.
  4. Subtract the result from the maximum contribution amount

The result is the amount you are allowed to contribute to a Roth IRA.

See Roth IRA Definition for limits and ranges

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