Retirement tax questions

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@jiweihe1223 wrote:

Is this reply still applicable for tax return 2021?
I over contributed to 401k in 2021 and am dealing with the same problem in TurboTax. 

 

Somehow TurboTax popup window says to report the excess deferral on your 2021 return in the Income section for Retirement Plans and Social Security whether or not you receive a form 1099-R before your return. Report the excess amount in boxes 1 and 2a and use code P in box 7. 

 

Is it OK to just report the excess deferral in miscellaneous income and ignore the above statement?

 

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You do not need to wait for a 1099-R next year that will probably require you to amend your 2021 tax return to report the excess on line 1 of your tax return - it can be entered this way and then ignore the 2022 1099-R with a code P in box 7 when it comes.

There are two methods to do this (I prefer the 2nd method because many people make errors or get confused by the 1099-R interview):

1) Enter a 1099-R with the returned contribution amount (not including earnings) in box 1 & 2a, and a code "P" in box 7. When asked what year 1099-R say 2022.

or 2)
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 2021 wages on line 1 exactly the same way that the 1099-R would. The only information that is sent to the IRS is the line 1 amount.

[Note: If there were any earning that were returned in 2021 then the earnings will be reported on a separate 2022 1099-R with a code 8 that goes on your 2022 tax return - do not enter the earnings here.]

Both methods will add the returned excess to your 2021 wages on line 1 exactly the same way that the 1099-R would. The only information that is sent to the IRS is the line 1 amount.

For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf

Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Include the loss as a negative amount on Schedule 1 (Form 1040), line 8 and identify it as “Loss on Excess Deferral Distribution.”

Enter as:
Miscellionious Income ->
Other reportable Income ->
Any Other Taxable Income (yes) ->
Description (enter "Loss on Excess Deferral Distribution" and amount as a negative number).