Retirement tax questions
@Moussa Nancy wrote:
I don't agree with the advice given regarding how to report the distribution of an excess contribution to a 401K plan. The important thing here is that the amount of excess contribution was distributed before the deadline. Taxpayer must wait until they receive form 1099-R, the year after, in order to report the transaction in their tax return. If 1099-R has code P in box 7, they will amend prior year return and add the 1099-R. If it has code 8 in box 7, it will be added to the tax year it was issued. Keep in mind that the plan administrator will withhold taxes from the excess contribution. Reporting the excess contribution by adding it to the wages before receiving the form 1099-R, will not take in consideration the tax withheld, nor the earnings that will be added to Box 1. Bottom line, wait until you receive form 1099-R in order to report the transaction in your tax return.
If you know the amount of the returned excess then it is not necessary to wait for the 1099-R and amend. The only IRS requirement is that the returned excess be added to the 1040 line 1 (wage) income. The 1040 is the ONLY thing that is sent to the IRS so it is immaterial how it got on line 1. TurboTax has a method specifically for this and is named "excess deferrals".
This is reported for the tx year in which the excess was made.
(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.
