2022 - How To Handle 401K Excess Contribution without 1099 and Earnings On Excess

[mckeerc]

Hello TT community,

I feel like this is a semi-frequent question but I'm still struggling with the answer.

Issue/History:  Numbers rounded for easy reading.

I transferred employers in 2022 and had maxed out my pre-tax 401K with Original Employer A.  New Employer B contributed $2000 pre-tax to my 401K by accident on 12/30/22, Which didn't hit Fidelity until 1/4/2023, so it's causing some confusion.  I have gone through the process to show Fidelity both of my W2s, and they have issued a Return of Excess Distribution for said $2000 on 1/25/2023.  Since this is a net new 401K, the only thing in there was my Employee match (say pre-tax $200 to make it easy), and my $2000 pre-tax contribution.  When they sold funds to disburse my $2000 on 1/25/23, they had to sell less shares than what my ($2000) portion of the 1/4/23 purchase was.  The delta amount logged into the transaction ledger as a "change in market value" was $100 on the 1/25/23.  Therefore I would imagine I have $100 of earnings.  Seems simple. 

With the $2000 check, Fidelity sent an accompanying letter stating "The full amount of excess deferral (less the Roth, if any, as noted in the tax information section of this statement) is taxable to you in 2022 and the earnings, if any, are taxable to you in 2023. "

That jives with my understanding and the IRS Tax Assistant that I need to add $2000 to my 2022 income.  I've also read that I perhaps need to get a corrected W2.  My Employer says they do not correct W2s for this situation and that I will receive 1099s to address it from a tax situation.  

So now I have outstanding issues I'm trying to crowd-source:

1)  Fidelity says they do not create 1099-Rs until 2024 and that they are taxable in 2023 as that is when they are requested to be disbursed even though their document says 2022...  Do I attempt to do this in TurboTax somehow without the form? (if so, instructions would be awesome! please & thank you).  

2)  Fidelity says I have $0.00 for earnings on $2000 amount. They are double checking on this after I asked about it to see if it was calculated correctly.  My understanding is this also needs to get disbursed now, but it's taxable in 2023 and, for which I would receive a 1099-R related form in Jan 2024.  Is this correct and am I on the right path?

3)  Do I need to push for a corrected 2022 W2 from Employer B?

4)  Should I work on just getting the amounts disbursed, and don't do anything tax reporting wise until I get all these forms next year?

Also/Related -  I swore there was a way to call TT/Intuit to ask for free help for a situation like this if you purchase the downloadable/desktop product.  Does that still exist or do I have to upgrade to different edition?  

Thank you so much!

[DanaB27]

1. and 2. Yes, you can report the excess 401k now to avoid amending your 2022 tax return. Please follow the steps below:

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 "2022 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 2023 tax filing due April 15, 2024: 

• 2023 Form 1099-R with code P in box 7 can be ignored if you reported the excess as described above in 2022. 
• 2023 The earnings on Form 1099-R with Code 8 in box 7 should be reported in 2023.

3. No, you don't need to get your W-2 corrected.

4. You can report it now to avoid amending your return or wait for the forms and amend your return.

Please be aware, if you do not take out the excess amount by April 15th, then you are taxed twice on the excess deferral left in the plan.  This happens once when you contribute it and again when you receive it as a distribution. You can't include the excess amount in the cost of the contract even though you included it in your income.

Please see  Pub 525 for additional details.

Please see What is the TurboTax phone number?

@mckeerc

[mckeerc]

I am very appreciative in the depth and structure of your answer.  Thank you!

[anakhaei]

In the same situation, I received a check from fidelity with the mount of the overpayment to my 401k for 2022. Fidelity already subtracted Federal and  State taxes from my overpayment. I'm currently filing my 2022 taxes , how should I report that the taxes were already paid by fidelity?