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Retirement tax questions
@master_d wrote:
I have this issue for 2020 taxes where I have excess 401k contributions across 2 different 401k providers and both providers refuse to distribute the excess deferrals saying that excess deferral requests must be made before 4/15 even though the tax deadline was extended to 5/17 for 2020. A turbotax advisor said that I will be taxed 6% on the excess 401k contributions until I'm able to get a disbursement of the excess amount. Is that true? If so that's horrifying and would potentially cause me to pay more in taxes than I ever contributed in the first place.
You were given incorrect information. The 6% penalty applies to IRA's, not 401(k)'s.
Although this thread is several years old the tax law has not changed. You must still report the excess on your 2020 tax return as taxable wages, and has been said before in this thread, when you retire and take distribution it will be taxes again as ordinary income.
You do not pay more in tax than the contribution. Since the contribution was not included in your taxable wages you must include it now. That will increase your tax somewhat.
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 2020 wages on line 1 on the 1040 form.