Thank you for the reply. I was just reading the IRS 525 document page 11 per your suggestion, and on column under excess contributions, it says:
Excess Contributions
If you're a highly compensated employee, the total of your elective deferrals made for you for any year under a section 401(k) plan or SAR- SEP plan may be limited by the average defer- rals, as a percentage of pay, made by all eligi- ble non-highly compensated employees.
If you contributed more to the plan than al- lowed, the excess contributions may be distrib- uted to you. You must include the distribution in your income as wages on Form 1040 or 1040-SR, line 1.
If you receive a corrective distribution of ex- cess contributions (and allocable income), it's included in your income in the year of the distri- bution. The allocable income is the amount of gain or loss through the end of the plan year for which the contribution was made that is alloca- ble to the excess contributions. You should re- ceive a Form 1099-R for the year the excess contributions are distributed to you. Add the dis- tribution to your wages for that year.
It seems to say that I should put this distribution under the year of distribution which is for 2021, not for 2020. Am I correct in the interpretation? I am a highly compensated employee in this situation.
Many thanks.
