Are Federal Taxes Withheld From a Distribution of Contributions Exceeding 402(g) Limits?

Q: An individual in our 403(b) plan recently exceeded the 402(g) elective deferral limit in 2026 and is not catch-up eligible. We have processed a correction, and a distribution of the excess deferral amount will be made accordingly. However, the participant asked how much in taxes will be withheld from the distribution. Do the Experts know the answer to this?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: As we noted in a prior Ask the Experts column, corrective distributions of excess deferrals and associated earnings are reported on Form 1099-R. Importantly, the Form 1099-R instructions provide that corrective distributions of excess deferrals are not subject to federal income tax withholding or Social Security and Medicare taxes.

Although the recordkeeper generally will not withhold federal income tax from the corrective distribution (at least for excesses distributed prior to April 15 of the following year), the participant remains responsible for reporting the taxable amounts on the participant’s Form 1040 or 1040-SR.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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