Level 20
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Retirement tax questions

This seems a bit unusual, but perhaps is correct and needs to be reported on your dad's 2017 (final) tax return.  It seems to be a return of an excess elective deferral your dad made in 2017, perhaps due to the 401(k) plan not passing the nondiscrimination tests since it seems that your dad could not have personally requested this distribution (unless he made the request in late 2017 before he died and the distribution was not completed until 2018).

It seems unlikely that this would be the only money that was in the 401(k) unless his death in 2018 somehow made him ineligible to make elective deferrals to the 401(k) plan for 2017, which seems unlikely.

A Form 1099-R reporting any distribution paid to you as beneficiary should have code 4 in box 7.  I think you need to contact the plan administrator to be sure that the reporting is correct and to make sure that any remaining balance in the 401(k) is dealt with appropriately.