Retirement tax questions

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@Random_Bunny wrote:

 

• I am assuming your advice to amend 2019 tax filing is for 2020 tax year when I actually get 1099-R, which I will get next year. But, what do I do for my 2019 tax filing that I am preparing right now? 
• This is all after tax contributions as I do not meet the income threshold to contribute to Traditional IRA to get any tax deductions. Additionally, when the re-charaterization was made- there were no earnings to report, there was a very small loss-- like less than $20. 

#1 - If you report the recharactorization now on your 2019 tax return then just ignore the 1099-R with a code R when  it comes.   Like I said, a code R does nothing and does not need to be entered.  The explanation statement is all that is needed.

#2 - Say you "switched" (recharactorized) the entire amount of the contribution, not adjusted for the loss.  Just mention the loss in the explanation statement.

#3 -

"My partner made excess deferral to 401K accidentally. This was from the job switch in September of 2019. We already informed the new employer in January 2020 and the employer paid back this excess contribution back in March 2020. Now, how do I report this? Someone said I would get 1099-R with P code in box 7 next year- but I should still report this on my 2019 return that I am in process of filing- as if I already have 1099-R."

Unless you are married, your partner files their own tax return.

You do not need to wait for a 1099-R next year that will probably require you to amend your 2019 tax return to report the excess on line 1 of your tax return - it can be entered this way and then ignore the 2020 1099-R with a code P in box 7 when it comes.

There are two methods to do this and they both do exactally the same thing.   I prefer the 2nd way because there is less room for error filling out a dummy 1099-R incorrectly or choosing the wrong year:

1) Enter a 1099-R with the returned contribution amount (not including earnings) in box 1 & 2a, and a code "P" in box 7. When asked what year 1099-R say 2020.

or 2)
Excess 401(k) deferrals should be reported in:
(There are several screens to click through to get to the right place)

Miscellionious Income ->
Other Income not reported on a W-2 ->
Other wages (yes) ->
House Hold employee (Continue) ->
Sick Pay (Continue) ->
Other earned income (yes) (Includes excess salary deferrals)->
Source of income (other) ->
Any other income - enter the amount of the excess deferral and an explanation.

This will add the returned excess to your 2019 wages on line 1 exactly the same way that the 1099-R would. The only information that is sent to the IRS is the line 1 amount.

[Note: If there were any earning that were returned in 2020 then the earnings will be reported on a separate 2020 1099-R with a code 8 that goes on your 2020 tax return - do not enter the earnings here.]

Both methods will add the returned excess to your 2019 wages on line 1 exactly the same way that the 1099-R would. The only information that is sent to the IRS is the line 1 amount.

For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf

Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Include the loss as a negative amount on Schedule 1 (Form 1040), line 21, and identify it as “Loss on Excess Deferral Distribution.”

Enter as:
Miscellionious Income ->
Other reportable Income ->
Any Other Taxable Income (yes) ->
Description (enter "Loss on Excess Deferral Distribution" and amount as a negative number).