Retirement tax questions


@Anonymous wrote:

Can you elaborate on why my employer needs to know if I am going to be making the excess distribution from Roth though?


Your employer might not be able to change your W-2.  The W-2 reflects what they paid you.  They don't know what happened afterward and they can't vouch for your honesty (that you removed funds from one or the other account).   If the employer sent money to a qualified retirement plan under a salary reduction agreement, they can't pretend it didn't happen.  You might try asking HR if they can reverse the excess contribution for you.  If they can't, you should expect your W-2 to reflect what actually happened from the employer point of view, and you will report how you fixed the problem on your tax return.  

 

In fact there is no particular penalty for this situation.  The consequence of excess contributions is that you pay tax on the excess (if it was a deferred pre-tax contributions).  If you withdraw the excess prior to the filing deadline, then you pay exactly the same amount of income tax as before, it just means that now, you won't be paying double tax when you withdraw your retirement funds.  The consequence of withdrawing the excess is that you must also withdraw any gains and pay tax on it.

 

So if you contacted the broker (Fidelity) and said "I contributed $$$ excess to my Roth option 401(k) and I need to withdraw it" they should have sent you the $$$ amount plus any earnings. You will get a 1099-R that reports the total distribution in box 1 and the taxable earnings in box 2a, and you will pay income tax plus a 10% penalty on the earnings only on your 2022 tax return.  If the Roth account lost money, Fidelity should be sending you just the $$$ amount.  The 1099-B box 1 will have the gross amount and the taxable amount in box 2a should be zero.