@marty00 wrote:
Thanks, @macuser_22.
I stand corrected and truly appreciate you taking the time to let me know.
I will work with Fidelity to get the excess amount withdrawn ASAP (say it is taken care by Aug 2020). Then I am assuming they will then issue a 1099-R (two of them one for the amount and the second one for the gain/loss).
Am I interpreting it right that I have to now add the excess amount as you mention in my 2019 tax return and ALSO also pay tax again next year tax return (as the amount will be withdrawn in 2020)? [Ignore the gain/loss for a moment].
Say the excess amount is $10,000 and I pay 20% taxes now, which is $2000 (to make the math easier). When I withdraw and Fidelity issues the 1099-R, I will have to pay another $2000? Plus factor in any gains/losses.
Did I get that right? What if I don't do anything now and take care of it next year to avoid double taxation - maybe pay a small(er) penalty?
Thanks!
You do NOT remove it at all. If you do then it will be a taxable distribution and of you are under retirement age subject to a early distribution penalty. Do not remove it until you retire and start taking distributions form yiur retirement account. It would make no sense to take any distribution before then.
It can no longer BE removed as an excess deferral and unless your employers 401(k) plan allows early distributions before retirement they would not even allow you to remove it.
**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.**
