Overview

Retirement plan contribution mistakes are common and fixable. Whether the error is an excess IRA contribution, an over‑withheld 401(k) deferral, or a misreported amount on your tax return, the correction steps depend on the account type, when you discovered the error, and whether it was reported on a filed return. Acting quickly keeps penalties and tax complications to a minimum.

Key IRS rules (as of 2025)

  • IRA excess contributions: You generally avoid the 6% excise tax for a year by withdrawing the excess plus earnings by the income tax return due date (including extensions). See IRS Publication 590‑A and 590‑B for details (IRS, Pub. 590‑A; Pub. 590‑B).
  • Employer plan excess deferrals (401(k)/403(b)): Excess elective deferrals must normally be distributed by April 15 of the year following the contribution year to avoid double taxation and other reporting complications. Employer reporting (W‑2 box 12) and possible amendment of Forms W‑2 or 941 may be required.
  • Amending a return: Use Form 1040‑X to correct amounts reported on a previously filed 1040. In many retirement contribution cases you’ll attach corrected statements or schedules and explain the change.
  • Excise taxes and reporting: Use Form 5329 to report excise taxes (for example, the 6% IRA excess contribution tax or certain early distribution penalties) when required. (IRS, Form 5329)

Step‑by‑step correction process

1) Identify and document the error

  • Gather account statements, pay stubs, year‑end 1099‑R / W‑2, and the filed tax return.
  • Confirm contribution limits and definitions for the tax year in question (e.g., catch‑up rules if you were age 50+). The IRS updates limits annually—verify the correct limit for the year you contributed (see IRS contribution limits pages).

2) Determine the error type and the applicable remedy

  • Excess IRA contribution: Remove the excess plus earnings by the return due date (including extensions) to avoid the 6% excise tax for that year. If you miss that window, you may owe 6% for each year the excess remains; file Form 5329 to report the tax. (IRS Pub. 590‑A)

  • Excess contribution left in an IRA: If you leave the excess in place, file Form 5329 for each year it remains and pay the 6% excise tax. You can correct it in a later year by recharacterization or using the excess to satisfy the next year’s contribution limit if eligible—but procedural rules and timing matter.

  • Excess elective deferrals to a 401(k)/403(b): If you contributed more than the annual deferral limit as an employee, notify your employer immediately. The plan must return the excess deferrals (plus earnings) by April 15 following the year of deferral. The excess should be included in your income for the year it was contributed (and again if not timely corrected). Employers may need to adjust W‑2 reporting and payroll tax filings.

  • Employer administrative errors (e.g., match or payroll withholding errors): Work with HR or the plan administrator. Many plan errors are corrected under the plan’s correction procedures or the IRS Employee Plans Compliance Resolution System (EPCRS) for plan sponsors.

3) Correct the tax return if reporting was incorrect

  • Use Form 1040‑X to amend your individual income tax return when contribution figures, deductions, or taxable distributions reported on your original return were wrong. Explain the reason for the amendment in Part III of Form 1040‑X and attach supporting documentation.
  • If the correction creates an additional tax due, file payment promptly to minimize interest and penalties.

4) File any required excise or penalty forms

  • Use Form 5329 to report and pay the 6% excise tax on excess IRA contributions or to claim exceptions (for example, timely withdrawal of excess). Enter the tax and carry total to Schedule 2 of Form 1040 as applicable.
  • For early distribution penalties or other issues (Section 72(t) exceptions), include required explanations and documentation with Form 5329 and your amended return if needed.

5) Keep the plan custodian and employer informed

  • For employer plans, the trustee or plan administrator must often perform the distribution of excess amounts and change payroll reporting. Coordinate so corrected amounts appear on the proper W‑2 and plan statements.
  • For IRAs, request a rollover or distribution of the excess plus earnings from the custodian and obtain a statement showing the withdrawal and earnings calculation.

Practical examples

  • Example 1 — Excess IRA contribution corrected before filing deadline: Sarah contributed $7,000 to a traditional IRA in tax year 2024 when the limit (under age 50) was $6,500. She discovered the mistake before filing her 2024 return and asked the custodian to withdraw $500 plus earnings by the due date (including extensions). Because she removed the excess timely, she avoided the 6% excise tax (IRS Pub. 590‑A).

  • Example 2 — Excess 401(k) deferrals: Alex changed jobs midyear and contributed $15,000 to Employer A’s 401(k) and $12,000 to Employer B’s plan in 2024, exceeding the elective deferral limit. On discovering the excess, he notified Employer B. The plan distributed the excess deferrals and earnings by April 15 following the contribution year; Alex included the excess in income correctly and avoided additional taxes beyond the corrective distribution.

When to amend vs. when to file correction forms only

  • Amend (Form 1040‑X) when the mistake affects lines on the income tax return (deductions, taxable income, tax liability, credits).
  • File Form 5329 when you owe an excise tax (e.g., 6% IRA excess) even if the distribution was already made. If the excess was timely removed, you may still need Form 5329 to show you meet an exception — read the instructions carefully.

Records to keep

  • Custodian statements showing contributions and any corrective distributions.
  • Plan administrator correspondence and corrected W‑2 or plan statements.
  • Copies of Form 1040‑X and Form 5329 and any supporting schedules.
  • Proof of dates (e.g., postmark or electronic confirmation) for distributions taken by the tax deadline.

Common pitfalls and how to avoid them

  • Waiting too long: Missing the timely correction window increases cost (6% excise tax for IRAs) and complicates employer plan corrections.
  • Ignoring employer communication: If your employer corrects payroll reports, confirm the corrected W‑2 shows the proper amounts.
  • Assuming one fix covers all years: An excess contribution that remains can cause repeated annual excise taxes until fixed — track corrections until fully resolved.

Professional tips

  • Verify contribution limits and deadlines for the specific tax year before taking corrective action (limits change yearly).
  • Coordinate with both your custodian and tax preparer so distributions and amended returns align.
  • For plan sponsors and employers: consider EPCRS (the IRS correction program) for complex plan operational errors and consult an ERISA attorney or retirement plan consultant.

Related FinHelp resources

Frequently asked questions (brief)

  • What’s the cost of an excess IRA contribution? Typically a 6% excise tax for each year the excess stays in the IRA; timely withdrawal by the return due date (including extensions) avoids the excise tax for that year (IRS Pub. 590‑A).
  • Do I always need an amended return? Not always. If the error was corrected by a plan distribution and didn’t change amounts on your Form 1040, you may only need Form 5329 or corrected W‑2 reporting. Amend if your taxable income or tax liability changes.
  • Who can help me? A CPA or an experienced retirement plan advisor can ensure the correction uses the right forms and timing and can coordinate with your employer or custodian.

Authoritative sources

  • IRS Publication 590‑A, Contributions to Individual Retirement Arrangements (IRAs). (irs.gov)
  • IRS Publication 590‑B, Distributions from Individual Retirement Arrangements (IRAs). (irs.gov)
  • IRS Form 1040‑X instructions. (irs.gov)
  • IRS Form 5329 instructions. (irs.gov)

Professional disclaimer

This article is educational and informational only and does not constitute tax or legal advice. Rules and limits can change; consult a qualified tax professional or the IRS for guidance tailored to your situation. For plan‑sponsor or employer issues, consult plan counsel or a retirement plan specialist.

If you’d like, I can walk you through drafting the language you’d use on Form 1040‑X or Form 5329 for a specific scenario — provide the year and account type and I’ll prepare sample wording and checklists.