Retirement tax questions

1. Yes, you need to report the excess deferral in the year the excess deferral happened. If you follow the steps below in will be reported on line 1h of Form 1040. 

No, TurboTax doesn't automatically adds it to the wages, you must use the steps below.

Please follow the steps below to add you excess deferral to your wages:

1. Login to your TurboTax Account 
2. Click "Wages & Income" (under Federal) on 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 "2024 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

If you receive the distribution of the excess deferral and earnings by April 15th then please note for the Tax Year 2025 tax filing due April 15, 2026: 

• Form 1099-R with Code P in box 7 can be ignored if you reported the excess as described above in 2024. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2025.

2. If you do not withdraw excess deferral the earnings they will stay in the account. When you later withdraw the funds as regular distributions they are taxable income as every regular distribution from the 401k.

The "penalty" is that you pay taxes twice on the excess deferral amount if you do not take out the excess amount by April 15th. There is no other penalty.

@sking10