dmertz
Level 15

Retirement tax questions

The $12k that was an excess contribution to the 401(k) for 2020 due to the failure of ADP or ACP testing retroactively became an excess contribution to the traditional IRA when it was rolled over to the traditional IRA.  Because the corrective distribution of the $12k occurred after the due date of your 2020 tax return, including extensions, you are subject to a 6% excess contribution penalty for 2020 on this excess contribution.  If you haven't already filed a 2020 Form 5329 Part III reporting this excess contribution, you'll need to do so.  Also because it was done after the due date of your 2020 tax return, including extensions, the corrective distribution consisted of a regular distribution of exactly the amount of the excess with no adjustment for investment gains or losses.  This distribution eliminates the excess for 2021 and beyond.

 

The $12k is taxable on your 2020 tax return.

 

For entry of the $72k Form 1099-R into 2021 TurboTax, you'll need to split the Form 1099-R into two, one for the distribution of the $12k and the other for the distribution of the other $60k.  On the one with the $12k in box 1, enter a zero in box 2a  This will cause TurboTax to treat it as a nontaxable distribution of the excess and will prompt you to prepare an explanation as to why this portion is nontaxable.  You'll also need to visit the traditional IRA contribution section of TurboTax under Deductions & Credits and indicate that you had a $12k excess carried in from 2020 and indicate that you had $12k of excess distributed after the due date of your 2020 tax return.  TurboTax will include this amount on line 12 of your 2021 Form 5329.   On the split form with the $60k in box 1, enter $60k in box 2a.