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Whether you’re an experienced do-it-yourselfer or doing your own taxes for the first time, this is your place to learn and share. Here you’ll find information and resources for using H&R Block’s online and software DIY solutions. You’ll also find links to more information to assist you on your DIY journey.

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Valued Pioneer
Posts: 3
Registered: ‎04-05-2017
Accepted Solution

457(b) and 401k limits when we have both a 457(b) and a 401k plan

Before we filed the 2016 taxes we thought our retirement contributions was 18k for our combined 401k and 457 plans.  Since the combined total was over 18k we got the "Excess Retirement Contribution" message from H&RBlock tax application which then treated the excess as income and resulted in tax on that excess income.  Now a few months after we filed, we reclarified the limits one more time with our Retirement Plan Administrators to make sure we don't go over again in our 2017 taxes. This is when we discovered we actually misunderstood the original explanation.  It turns out each plan had its own 18k limit and we, therefore, overpaid in taxes as a result. 

 

What can we do to correct this so that we can get back the taxes we overpaid?

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Trusted Council Member
Posts: 6,191
Registered: ‎02-23-2016

Re: 457(b) and 401k limits when we have both a 457(b) and a 401k plan

Hi jenny_b_torres,

 

If you did in fact pay extra taxes then all you need to do is file an amended tax return to correct the error.  So long as it's within three years of the original due date for the return you'll get a refund of the excess amount.

 

The question that we need to answer though is whether or not an error was actually made.  There are limits on 401(K) plans that you may not have known about and weren't told about, so let's eliminate that possibility first if we can.  The overall limit for 401(K) elective deferral contributions (and this one is what catches people the most) is $54,000 in total between all of your accounts or an amount equal to your earned income, whichever is less.  If your earned (wage & salary) income is less than your total contribution amount then that could be how you were over the limit.

 

You are correct that the limit for 401(K) elective deferral contributions is $18,000 per account.

 

For a 457(B) plan the annual limit for elective deferral contributions is either $18,000 or an amount equal to your earned income, whichever is less.  The annual limit on 457(B) plans is significantly lower than a 401(K), so that is another possible reason why you paid tax on some of the distribution.

 

How much is your wage & salary income?  How much did you contribute to each plan?  With the answers to these two questions I'll be able to figure out if you were actually within the limits or not.

 

 

Louis,

Senior Tax Advisor (Tampa, FL)

Trusted Pioneer
Posts: 5
Registered: ‎11-11-2017

Re: 457(b) and 401k limits when we have both a 457(b) and a 401k plan

     I adjunct teach at a Massachusetts college and they pull out money for "Alternate Retirement Plan".  In Massachusetts, stat workers don't pay into Social Security, but instead into Massachusetts' retirement plan. Last year's W2 listed this income as "G" in block 12 or 'elective referrals into a 457 (b) plan'. [elective is a strong word] This year, it is not much money, about $15k in wages and ~$1000 in this alternate retirement plan.

     I like to plan early to make sure there are no surprises at tax time, so I have put in projections into H&R Block 2017 (I have regular income streams, so my projections will be pretty close to actuals).  I selected "G" again this year for the "Alternate retirement" funds but the H&R Block 2017 program seems to be counting it against my 401(k) limit?  I will be right under the $18000 limit for 401(k) contributions but the program is telling me I put in $1000 too much?  it is a bug or am I really over?  Looking at the previous post, I am guessing a bug?

Trusted Pioneer
Posts: 5
Registered: ‎11-11-2017

Re: 457(b) and 401k limits when we have both a 457(b) and a 401k plan

Upon doing some research, the IRS keeps the limits for 457(b) plans and 401(k) plans separate.

 

https://www.irs.gov/retirement-plans/how-much-salary-can-you-defer-if-youre-eligible-for-more-than-o...

 

This says that 401(k), 403(b), SIMPLE plans (SIMPLE IRA and SIMPLE 401(k) plans) and SARSEP are all subject to a combined limit of $18,000 for 2017 and that " This limit must be aggregated for these plan types" However, the IRS says "If you’re in a 457(b) plan, you have a separate limit."

 

It also says "The amount you can defer (including pre-tax and Roth contributions) to all your plans (not including 457(b) plans) is $18,500 in 2018 ($18,000 in 2015 - 2017)."  and again " You have a separate deferral limit if you’re also eligible to participate in a 457(b) plan. ... It is not combined with your deferrals made to a 403(b) or other plans.

Elective deferrals - In 2018, you may defer the lesser of $18,500 or 100% of your includible compensation to a 457(b) plan ($18,000 in 2015 - 2017)." 

 

Pretty clear stuff, once I found it.

 

Last year I used TurboTax and went back to verify and indeed, TurboTax treats these limits separately.  However, even after this first update, H&R Block 2017 software incorrectly adds the two together and imposes a single limit on the combined mount and charge me a fee for exceeding the limit.  Now I just have to figure out how toy report the error and get it fix, override the software, or switch back to TurboTax.

 

Trusted Pioneer
Posts: 5
Registered: ‎11-11-2017

Re: 457(b) and 401k limits when we have both a 457(b) and a 401k plan

This is a bug in the 2017 version of the software as well.  My 457 plan and 401k plan exceed $18,000, but the limits are separate.    I reported the error, but the fact that it evidently persisted from 2016 is not comforting!  I hope it gets fixed so that we do not have to correct again next year!

 

 

Associate (Pioneer)
Posts: 79
Registered: ‎01-08-2018

Re: 457(b) and 401k limits when we have both a 457(b) and a 401k plan

Hello JoeCoastie,

 

Welcome to H&R Block Community.

 

There is a separate deferral limit for the 457(b) and the 401(k) plans, according to the tax rules. In the tax software for both 2016 and 2017, there should be a Data Verification message when going through the Accuracy Review section of the tax software that should say the following:

 

"Data Verification

 

We've determined that you have an excess deferral of $(dollar amount) and have included this amount on the wage line of your return. Please confirm that this is correct.

 

Location:

Non-W2 Wages - Worksheet for Wages Not on a W-2

 

Make any changes in the form below."

 

On the bottom portion of this same Data Verification message, there should be a Non-W2 Wages worksheet where you enter the combined dollar amount for the allowed deferral limitation for the 401(k) and 457(b) plans on line "c. Actual limitation amount (if different from line b above)."  After making this entry on line c, this should remove the erroneous excess deferral amounts that’s been included in wages on Line 7 of the Form 1040 in the tax software. 

 

Another way to go about this is to access the "Non-W2 Wages" worksheet in the Forms menu by following these steps:

1. Click the “Forms” button on the top portion of the software's screen

2. Scroll down to find Non-W2 Wages (Worksheet for Wages Not on a W-2)

3. Double click Non-W2 Wages (Worksheet for Wages Not on a W-2)

4. Find line "c. Actual limitation amount (if different from line b above)”

5. Enter the combined dollar amount of the deferral limits allowed for the 401(k )and 457(b) plan on line "c. Actual limitation amount."

6. Hit Enter

7. Click Close

8. Then, that should remove the erroneous excess deferral amounts from wages on line 7 of Form 1040.

 

Do this for the 2017 software and the 2016 software.  For the 2016 software, if the 2016 return is already filed, the 2016 return would need to be amended. In the 2016 software, go through the “Amended Return (Form 1040X)” interview screens to start amending the 2016 return and follow the information provided above on removing the erroneous excess deferral amounts.

 

I hope this helps. If you have any other questions, I'll be glad to help.

 

Lawrence,

Tax Research Specialist

Trusted Pioneer
Posts: 5
Registered: ‎11-11-2017

Re: 457(b) and 401k limits when we have both a 457(b) and a 401k plan

Thank you for this elegant workaround to the flaw in H & R Block tax software 2016 and 2017. This workaround will allow me to trick the software into the right calculation and will allow those bitten by this software error (bug) last year to try, with no small effort of re-filiing, to recoup their losses. I downloaded the latest 'update' and it is not fixed yet,  but let's hope that the folks writing the software actually create a real solution so that those who don't see your workaround are not saddled with the effects of erroneous programming and therefore suffer a larger, inaccurate tax bill.

pbt
Pioneer
Posts: 1
Registered: ‎01-31-2018

Re: 457(b) and 401k limits when we have both a 457(b) and a 401k plan

So just to clarify, has H&R Block confirmed that this is an error or at least deficiency in the software, and it has now been queued for correction for more than a year? And there is still no estimate as to when the correction will be available?