I've always wondered about this one.
Assume the following:
*You made the contribution to your employer's 401k in 2008.*In 2009, your employer refunds a portion of that contribution to you (e.g. for top heavy plan reasons).
As I recall, the amount refunded will be considered income to you for tax year 2008 even though you didn't receive it and had no way of knowing about it in 2008.
Suppose that because of the refund, you failed to pay enough estimated tax in 2008 to avoid an underpayment penalty. If it had not been for the refund, you would have paid enough.
How can you be expected to be able to properly calculate your estimated tax if you aren't clairvoyant enough to know in advance if or how much of your 401k money will be refunded to you?
I understand you can use the safe harbor rule, etc. But assume that you don't want to use that method because it would cause you to significantly overpay.
Thanks for any help on this one!
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