I accidentally overfunded my SEP or 401(k) profit sharing. How do I correct this?

This is a fairly common problem, but it can usually be corrected. You must remove the excess contribution and any earnings on the excess contribution ASAP.

The first step is to quantify the excess contribution as well as any earnings that have accrued on the excess contribution. Second, you must contact your custodian immediately and inform them of the error. They will typically provide you a form to remove the excess contributions and any earnings.

The custodian will report the distribution on Form 1099-R along with the earnings that you made. The distribution is not taxable, but the earnings are. Of course, you should NOT take a tax deduction for the excess contribution.