I switched employers in 2018 and, due to a calculation error on my end, over-funded my 401k. My plan sponsor's deadline to provide an excess contribution distribution was March 1st and says I am too late to go through that process.
It is clear that I will be double-taxed (it's too bad, but fine) and I will keep pushing my plan sponsor to see if they can make an exception for me, but I am having trouble understanding how I need to fill out my 2018 tax return, assuming I CAN'T get the distribution and amended W-2 before 4/15/18.
I'm guessing the step is something like going back to my W-2 information and reclassifying my income so that less of it is tax-free and I don't exceed 18,500 in the 401k distribution box on my tax forms. Then do I also need to pursue a 1099-R in parallel to distribute the difference (which I will declare on my 2019 tax return). Is there something else i need to do?
I am clear that I will be taxed twice, but am not sure how to do the proper accounting in 2018 and forms to fill out to make sure everything goes through appropriately... my plan sponsor is not being helpful.
Whether or not your plan sponsor meets the 4/15/19 deadline, you need to include the excess 401(k) contribution to your wages on your Form 1040, using the instructions below.
If the plan sponsor is unable to make the distribution by 4/15/19, you will end up paying taxes on the amount twice...first on your 2018 Tax Return and then again when you withdraw the money during retirement.
You should not make any changes to your W2, it needs to be input exactly as it appears so that the IRS can match the information to your return.
You should report the excess contributions on Line 1 of your 2018 Tax Return by following these steps:
- Login to your TurboTax Online Account
- Click "Take Me to My Return"
- Click "Federal" from the left side of your screen
- Scroll down to "Less Common Income" and click "Show More"
- Select "Miscellaneous Income" and click Start or Update
- Select "Other income not already reported on a Form W-2 or Form 1099" and click on Start
- Answer the Question "Did you receive any other wages? Yes
- Click "Continue" through the questions until you get to "Any Other Earned Income"
- Answer "Yes" to "Did you earn any other wages?
- Indicate "Other" as Source of Other Earned Income and click Continue
- For the description enter "2018 Excess 401K Deferrals" and click on Done
If your Plan Sponsor ends up making the distribution by 4/15/19, you will receive a 2019 Form 1099-R in 2020 showing the refund with a code "P" in box 7 which you can ignore if the excess deferral is reported as suggested above. However, the earnings will be reported on a separate 2019 Form 1099-R with a Code "8" in Box 7 that should be reported on your 2019 tax return.
You mention that I should not change my W-2 at all. TurboTax reports as an error that I have a number greater than $18,500 on my W-2 Summary in box 12b (which is calculated correctly from my two W-2s). After following your suggested steps for declaring 2018 Excess 401K Deferrals, I believe it is appropriate to send in my return with a greater number than $18,500 in W-2 Summary 12b or am I missing a step in the above?