Thank you @Opus 17 and @DianeW777 for your thorough and quick answers! Really appreciate it.
- I have not filed my 2019 taxes yet - I'm doing that now using TurboTax Home and Business 2019 for Windows.
- TurboTax did detect the excess deferral to my 401k and alerted me with a warning. I did not follow their help instructions on how to make the changes.
- Instead, I followed the instructions from @DianeW777 and others from threads like (https://ttlc.intuit.com/community/taxes/discussion/excess-deferral-to-401k-for-2019-taxes/01/1258128) so now the extra $8,750 is part of line 1 (wages) on my 1040 for 2019.
- I also called the IRS this morning and this is my understanding of the conversation I had with them:
- The agent referenced Pub 525 for year 2019, starting on Page 10.
- I mentioned this link to the agent: https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-elective-deferrals-exceeded-code-402g-li... but he said that was geared towards the employer sides of things, not employees and didn't apply to individuals.
- The excess deferral needs to be on line 1 of 1040 as wages (since that's what that money was). I've done that by including it on line 1 of my 1040 as per above instructions.
- The agent said it should not be taxed when doing a corrective distribution since you'll be paying taxes on it in 2019 and these are wages that should not have been in the 401k to begin with, so it's treated as wages. Also there won't be any penalties since it's wages.
- But you will pay income taxes on the earnings from it when distributing it.
- The above two bullet points made sense to me, but based on the information in this thread from @Opus 17 and @DianeW777 and other threads I've read, it sounds like I may actually be paying income tax on it in 2019 and then again when I get it distributed to me. Which is correct?
- @Opus 17there's no way for me to do a corrective distribution? Is that the same thing as Fidelity telling me that they are not allowed to Return of Excess because it's past April 15, 2020? IRS agent did mention that I could take a "corrective distribution" and would not be taxed twice on it sine I will be paying taxes on the $8,750 wages in 2019.
- According to the IRS definition of "highly compensated employee" (https://www.irs.gov/retirement-plans/plan-participant-employee/definitions), I may actually be, because for job 1 I worked for several years and was making more then $125,000 in 2018 (preceding year). So will I be charged 6% penalty per year and then in 20 years when I retire, I'll be screwed?
- How do I take that $8,750 money out of my 401k, if not with a correct distribution, then what? Is that advisable? I'm really concerned about the 6% per year.
Really appreciate your insights - every day I learn something new from you all!
