Either way is fine, as long as the excess 401(K) contribution is included as wages on your 2018 Tax Return. You do not need an amended W2 and you won't receive a 1099R until next January.
NOTE: There is currently an e-filing issue within TurboTax related to excess contributions. An update to fix the issue is expected to be released around 4/5/2019. You can check out this TurboTax FAQ for more information: Excess 401(k) Contribution Preventing E-filing. Be sure to sign up for updates to be alerted as soon as there is a solution.
I am including the instructions for my preferred method below:
If you overcontributed to your 401(k) in 2018 and the excess was distributed in 2019, you need to include the excess contribution to your 401(K) on line 1 of your 2018 Form 1040 by following these steps:
- Open your return
- Click on the "Federal Taxes" Tab
- Click on the "Wages & Income" Tab
- Click on "I'll choose what I work on"
- Scroll down to "Less Common Income" and click "Show More"
- Select "Miscellaneous Income" and click "Start or Update"
- Select "Other income not already reported on a Form W-2 or Form 1099" and click on "Start"
- Answer the Question "Did you receive any other wages? Yes"
- Click "Continue" through the questions until you get to "Any Other Earned Income"
- Answer "Yes" to "Did you earn any other wages?"
- Indicate "Other" as "Source" of Other Earned Income and click "Continue"
- For the description enter "2018 Excess 401K Deferrals" and click on "Done"
You will receive a Form 1099-R in 2019 with a code P in box 7 which you can ignore if the excess deferral is reported as suggested above. However, the earnings (if any) will be reported on a separate 2019 Form 1099-R with a Code "8" in Box 7 that should be reported on your 2019 tax return.
