2020 Excess Deferral

Forum|Forum|5 years ago
March 8, 2021
1 reply
17 views

I changed jobs in 2020 and made an excess deferral to my 401(k). I did not notice until doing my taxes in March 2021, so I did not continue filing. I then notified the plan administrator immediately and requested a corrective distribution. However, upon inquiring with my current employer, I am being told a corrected W2 is not necessary. Upon researching the topic here, I found plenty of solutions on how to enter the excess deferral as miscellaneous income on my 2020 return when I continue to file it. However, my question is do I leave the 401(k) contribution amount as-is (i.e. including the excess)? Or, do I adjust that accordingly on the W2 entry section (i.e. subtract the excess deferral that is to be refunded)? Or, does it even matter? In addition, most of my excess contribution was made to a designated Roth account. Does that mean I only need to add the "tax deferred" amount to miscellaneous income while the designated Roth contributions do not have to be accounted for as miscellaneous income, since it has already been taxed?

MinhT1

Level 15

Reporting excess salary deferrals (excess 401k contributions) returned to you after the end of the tax year but by April 15th of the following tax year on your 1040. Do not create your own 1099-R for this situation.

Page 10 of IRS Pub 525 under Excess deferrals (the IRS term for 401K contribution is deferral) tells us to include the excess deferrals as income on line 7 of Form 1040 if the money was returned after the end of the tax year but by April 15th of the following tax year. You need to report only the excess contribution, not any money generated by the investment of the excess contribution. What you earned will be covered by a 1099-R for the following tax year and will be entered then as a normal 1099-R.

Below is how to do this in TurboTax:

Click on Federal in the left-hand column, then on Wages & Income
Under All Income, scroll down to Less Common Income
Select Miscellaneous Income and click Start
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 through the questions till 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 "2020 Excess 401K Deferrals" and click on Done

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tuckerianduke

Level 2

Hi MinhT1,

I have a related question on this. My wife made an excess deferral and reported it to her employer and the plan administrator. As a result we have received the excess deferral back. However, her employer also sent her an amended W2 to reflect that there was an excess deferral and reduced Box 12 Letter code E by the amount of the deferral (several thousand dollars). I just want to ensure that by following the steps below and reporting the excess deferral as miscellaneous income we will not be double counting this amount (because it is no longer listed on her W2 as a deferral). Thanks!

ThomasM125

Level 15

@tuckerianduke Since you have a corrected W-2, you don't need to make the entry to Other Income. You may want to verify that the amount listed in box 1 on your W-2(c) form is your wages less the corrected retirement plan contribution for the year. If so, then you just need to report the W-2(c) instead of the original W-2 form on your tax return.

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