Follow these steps, since you were auto-enrolled and took a permissible withdrawal, it is a better position.
- Since it technically is an excess deferral, the wages must be taxed on line 1h $147.
- The 1099-R must be entered but should not be taxed as income.
- Leave box 2a blank so the program will ask about the taxable amount for box 2a.
- Enter zero as the taxable amount
- Keep a note for your records, in case the IRS asks: "Permissible withdrawal of auto-enrolled elective deferral under IRC 414(w). Income already reported as excess deferral on Line 1h."
- The $1 loss - it is not for Sch 1 line 8z - no loss on corrective distribution allowed on 1040.
Code 2- reasonable- it says you should not have a 10% penalty but I understand it does not "feel" the best.
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