excess 401(k) contribution

[Paul]

I had an excess 401(k)contribution in 2006 because of a
failed ADP test, and the refund was paid by March 15, 2007.
In January 2008, I will receive a 2007 1099-R with code P
(taxable in 2006). Would there be any penalty if I waited
until I received the 1099-R in January 2008 and then paid
the tax by filing a 1040x for 2006?

 

[Phil Marti]

I had an excess 401(k)contribution in 2006 because of a
failed ADP test, and the refund was paid by March 15, 2007.
In January 2008, I will receive a 2007 1099-R with code P
(taxable in 2006). Would there be any penalty if I waited
until I received the 1099-R in January 2008 and then paid
the tax by filing a 1040x for 2006?

No penalty, but you would have the hassle of amending your
2006 return and you would owe interest on the additional tax
from 4/15/2007 to the date of payment.

Why would you want to file a return you know is incorrect
just to have to amend it later and pay interest?

 

[Paul]

No penalty, but you would have the hassle of amending your
2006 return and you would owe interest on the additional tax
from 4/15/2007 to the date of payment.

Why would you want to file a return you know is incorrect
just to have to amend it later and pay interest?

Ok, thanks. I agree that I should include the refund on my
2006 1040. However, since there was no withholding
associated with refund, the refund could cause an
underpayment of 2006 withholding/estimated payments. Can a
refund of 2006 excess 401(k)contributions due to a failed
ADP test result in an underpayment penalty even though the
failed test and refund amount was not reported to the
taxpayer until after January 15, 2006 (the last estimated
tax payment due date)?