Exceeded 401k Contribution. What should I do?

Forum|Forum|6 years ago
April 12, 2020
2 replies
27 views

I have exceeded my 2019 401k contribution. I have notified my employer and told me that they will do a withdrawal and have to issue a corrected W2. However, I don’t think they will be withdrawing the excess amount by April 15. I know I’ll be double taxed but would like to find out how to do my tax filing. Is the bug when e-filing with this situation already resolved? Thanks!

MaryK4

Level 15

Whether or not your plan sponsor meets the 4/15/20 deadline, you need to include the excess 401(k) contribution to your wages on your Form 1040, using the instructions below.

If the plan sponsor is unable to make the distribution by 4/15/20, you will end up paying taxes on the amount twice...first on your 2019 Tax Return and then again when you withdraw the money during retirement.

You should not make any changes to your W2, it needs to be input exactly as it appears so that the IRS can match the information to your return.

You should report the excess contributions on Line 1 of your 2019 Tax Return by following these steps:

Login to your TurboTax Online Account
Click "Take Me to My Return"
Click "Federal" from the left side of your screen
Scroll down to "Less Common Income" and click "Show More"
Select "Miscellaneous Income" and click Start or Update
Select "Other income not already reported on a Form W-2 or Form 1099" and click on Start
Answer the Question "Did you receive any other wages? Yes
Click "Continue" through the questions until you get to "Any Other Earned Income"
Answer "Yes" to "Did you earn any other wages?
Indicate "Other" as Source of Other Earned Income and click Continue
For the description enter "2019 Excess 401K Deferrals" and click on Done

If your Plan Sponsor ends up making the distribution by 4/15/20, you will receive a 2020 Form 1099-R in 2021 showing the refund with a code "P" in box 7 which you can ignore if the excess deferral is reported as suggested above. However, the earnings will be reported on a separate 2020 Form 1099-R with a Code "8" in Box 7 that should be reported on your 2020 tax return.

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bowhan0x

Level 2

Hello, thanks for the useful tips.

What if the 1099-R received next year has a code "E" instead of "P" in box 7. Can it be ignored as well?

Thanks again!

macuser_22

Alumni - Champ

@bowhan0x wrote:

Hello, thanks for the useful tips.

What if the 1099-R received next year has a code "E" instead of "P" in box 7. Can it be ignored as well?

Thanks again!

Neithedr a code P or code E can be "ignored". They both must be entered and any amount in box 2a will be taxable.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

macuser_22

Alumni - Champ

@russelsp wrote:

... have to issue a corrected W2.

Is the bug when e-filing with this situation already resolved? Thanks!

The plan trustee must issue a 1099-R for the excess. The W-2 is correct because 2019 is over and can not be retroactively changed to add income that was not taxed at the time. You must add the income to the 1040 line 1 wages so that thet money that was not reported on the W-2 is now taxed.

There is no known bug in this area. What bug are your referring to?

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

awillis2

Level 2

Although a 1099R SHOULD issue from the employer when there are excess contributions, it is not uncommon for it to go unnoticed when the taxpayer changes jobs.