A 403(B)(7) participant has an excess deferral for year 2000. The request to correct the excess was submitted in July 2001 (this year).
How should the transaction be treated since it is now after the individual's tax filing deadline?

Should the earnings be removed?
Should both the earnings and the excess amount be reported as taxable?

Thanks

Actually, there may be a problem with the employer removing money at all from the 403(B)(7) plan, since the 403(B)(7) contract is owned by the employee. (This differs from a typical qualified plan, in which assets are held in a trust for the benefit of employees, rather than directly by employees.) In informal conversations with people at the IRS, I have been told that the IRS recognizes this difference, and will typically have the employer pay the 2% penalty for excess contributions provided in other situations under the VCR program, rather than requiring a return of the money to the employee.

Thanks Carol,

Would it be an option though, for the employee to remove the excess deferal, like they would with a 401(k), and if so, considering the timing, how should it be processed ( i.e. should the earnings be removed as well) and reported ( i..e return of excess or just as a regular taxable distribution)