Retirement tax questions

a) The IRS didn't move the date for the 401k. Therefore, you had to remove the excess before  April 15th, 2021 to avoid double taxation. Please see IRS April 8th 401k announcement: "If an individual defers more than this limit for 2020, the excess deferral amount plus earnings must be distributed by April 15, 2021. Excess salary deferrals not withdrawn by April 15 are taxable in 2020 and again when withdrawn. The date to remove excess salary deferrals has not been extended."

b). If you receive it later than April 15th, you must include the excess deferral amount in income in both the year of the deferral and the year you receive it (2020 Publication 525 page 11). Yes, you would have to pay the 10% early withdrawal penalty on the distribution if you are under 59 1/2.

2) No, if you rollover or convert the amount you would not pay the 10% penalty. Please be aware a conversion would be included in your taxable income.

3) Excess not distributed. If you don't take out the excess amount, you can't include it in the cost of the contract even though you included it in your income. Therefore, you're taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution. (2020 Publication 525 page 11)

Since you didn't remove the excess by April 15th, 2021 you will use the steps below to report the excess deferral on your 2020 tax return and when you withdraw the amount it will be a taxable distribution.

1. Login to your TurboTax Account 
2. Click "Federal" from the left side of your screen
3. Scroll  down to "Less Common Income" and click "Show More"
4. Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
5. Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
6. On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
7. Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
8. On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
9. On the "Any Other Earned Income" screen enter "2020 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

@tucustomer