In my last paycheck, the payroll processing made an error and deducted an extra amount for the 401K from the paycheck. I caught it as soon as I checked the paycheck, but by the time someone got to the bottom of it, the amount made it to the 401K account. Now I am told that the extra amount would be reimbursed in the next paycheck. The only way it could happen is to withdraw the extra amount from the 401K amount as the amount is already in the account. While the same company process the payroll and is the custodian of 401K account, I am concerned that the payroll processing company may not know all the complexities about 401K.
- Would this "adjustment" be treated as withdrawal from 401K?
- When and how would I find out if I can take the word of payroll processing department that it won't be treated as withdrawal?
- The instrument that the amount gets invested has 90 days lock policy i.e. there is a penalty if the invested amount is withdrawn within 90 days. Would this "adjustment" cause that penalty? This probably would have to be dealt with by a different department and a different set of people even though it is the same company.
In the end I am responsible to the IRS for any interest and penalties even if the error was made by payroll processing company. I'm concerned about what I should do now when I can get hold of both my companies HR as well as same set of people in the payroll processing vs. months or years later being told that those guys back then did it wrong. The amount is significant enough so I would like it to be fixed, but if it is going to cause trouble down the road (especially with the IRS), I would rather just swallow the bitter pill now.