@dmertz
Who said you could recharacterize the contribution as an IRA? I don't believe it's that simple. You might be able to remove the excess contribution and then make an IRA contribution in the same dollar amount, but that would be subject to the normal rules and deadlines for IRA contributions.
If you removed the excess contribution before the deadline, you must
(A) Add the contribution back to your taxable income as wages (because they were not included in your W-2 wages, you have to add them back). Use this instructions from expert @MinhT
Below is how to do this in TurboTax Online:
- Click on Federal in the left-hand column, then on Wages & Income
- Navigate to the list of income categories
- Locate the section Less Common Income
- Select Miscellaneous Income and click Start
- 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 through the questions till 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 "2024 Excess 401K Deferrals" and click on Done
(B) Add the 1099-R to report the attributed earnings as taxable income.
Then, if you used the removed excess to make an IRA contribution, enter that separately in the IRA section. It might be deductible or not deductible, depending on your income and other tax information. If it is a non-deductible IRA contribution, your tax return will generate a form 8606 that you need to keep for as long as you have any non-deductible funds in your IRA. You may have options such as a "backdoor" rollover, we can talk about that later if needed.
