Sole Proprietorship here. In early March 2020 I made an employee (self) 401k contribution of $15,000 for the year 2019 (which is permitted) and a couple of weeks later discovered a computational error so the contribution was $3,000 to high. I called Fidelity and they took the $3,000 out of the solo 401K and deposited it back into the taxable account. The solo 401k is cash and no income was earned on the $3,000 while in the solo 401k. On the 2019 tax return I showed a $12,000 contribution, which was the correct net.
I now have a 1099-R from Fidelity for the 2020 correction of the excess deferral, referencing in Box 7 "Distributions under Employee Plans Compliance Resolution System."
1. Am I taxed in 2020 on the return of the excess deferral (seems odd but perhaps that's the law for making a mistake even with a prompt correction).
2. Other?
