Excess 457 Contributions

[jamesfsmithco]

Made contributions to a 457 account in 2017 and 2018.  I then retired and rolled the funds over to an IRA account with Vanguard in 2H2018.  The 457 firm then did an audit and notified me in February, 2019 I had made excess contributions in both 2017 and 2018 which were included in the rollover amount.  Now trying to straighten it all out.

The 457 firm has issued two 1099-R for 2018:  one with a Distribution Code (box 7) of "P - Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2017" and the second with a Distribution Code of "8 - Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2018." 

Vanguard is returning the excess contributions and earnings and will issue a 1099-R for 2019 for that amount.

The 457 firm says their 1099-Rs are "informational only and do not need to be reported on my 2018 return."  Instead, I will report the Vanguard 1099-R on my 2019 return (the year the funds were actually returned).

Would appreciate advice as to whether this interpretation is correct.  Thanks in advance for your help.

[macuser_22]

@jamesfsmithco-  You were given bad advice.  You are required to report the excess on your tax returns.   The 1099-R box 1 and 2a (should be the same) amounts are taxable as wages in both 2017 and 2018 because they would have been deducted from your W-2 box 1 taxable wages - you must pay that tax now.

The 2018 1099-R with the code "P" must be reported on an amended 2017 tax return and will add the box 1 amount to the 1040 line 7 amount of taxable wages.

The 2018 1099-R with the code 8 is enter on your 2018 tax return and the box 1 amount will be added to the 2018 1040 form line 1 wages.

For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf

Enter a 1099-R here:

Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR  Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

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Amended returns can only be mailed. It is suggested that it be mailed certified with return receipt (or other tracking service) to verify that the IRS receives it.

https://ttlc.intuit.com/questions/1894381-how-to-amend-change-or-correct-a-return-you-already-filed

https://ttlc.intuit.com/replies/3288565

You can check the status of the amended return here, but allow 3 weeks after mailing.

https://www.irs.gov/filing/individuals/amended-returns-form-1040-x-/wheres-my-amended-return-1