401(K) excess contribution not fully withdrawn

[Johny2025]

Hi,

I am in a slightly odd situation with excess 401K contribution and withdraw that I'm hoping I can get some advice.

In 2023, one of us over contributed to 401(K) and Roth 401(K) due to changing jobs, say total over contribution was $3500. In 2024 tax season, we discovered the over contribution on the regular 401(K) side ($2000), but missed the over contribution on the Roth 401(K) side by $1500.  We requested custodian and withdrew the $2000 excess contribution in 2024 season, and received $2300 total ($2000 + $300 earnings) in 2024.

In the 2023 tax return filed by April 15 2024, we reported income unreported on W2 due to excess contribution of $2300 - I didn't understand if I should have included the earnings, so I did.

In April of 2024, we discovered the excess Roth 401(K) contribution, and tried to withdraw that also. However, the custodian couldn't process anymore as excess contribution withdraw.  By June of 2024, we withdrew the $1500 from Roth 401(K).

I have a few questions regarding the different portions:
1) For the $2300 that we reported as income in 2023 tax return, we received 1099-R with code P for $2000, and 1099-R with code 8 for $300 as the earnings. Based on reading many answers here, it appears that I can ignore the 1099-R with code P, but should include 1099-R with code 8 in my 2024 tax return.  Is this correct, or can I also ignore the $300 1099-R with code 8 since I had already reported in 2023 return?

2) For the $1500 Roth 401(K) withdraw, we also received a 1099-R with code 1 (ordinary distribution), and it indicated that $1400 was the Roth contribution, and $100 is earnings, and taxable portion is the $100.  How should I treat this 1099-R?  Do I just file it as it is?  Is there something I also need to do to further correct the 2023 excess contribution while seems like I'm still $100 over contributed.

My priority is to try to follow the tax code as closely as possible to avoid any problems that might trigger audit, and I'm less concerned about the small penalty tax that I might end up paying.  Turbotax unfortunately wasn't very clear and didn't provide alerts when I over reported the income in 2023.  I appreciate someone with some experience in this area for insights. 

[DanaB27]

1) Yes, you can ignore Form 1099-R with code P but you need to enter the Form 1099-R with code 8 on your 2024 return. You also need to amend your 2023 return to correct the amount of excess deferral to $2,000. Please see How do I amend my federal tax return for this year?

2) To clarify, you requested to withdraw $1,500 but you only received $1,400? 

You might have to check with your custodian. 

 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.

Since you failed to withdraw the excess by April 15, 2024 the excess becomes pre-tax money in the Roth 401(k), taxable upon distribution . Therefore your distribution from the Roth 401(k) should be a taxable distributions of this excess (and earnings attributable to the excess). Please check with the custodian.

[Johny2025]

Thank you!  

To follow up on #2, 

2) To clarify, you requested to withdraw $1,500 but you only received $1,400? 

You might have to check with your custodian. 

- The custodian sent us $1500 in June of 2024, and in the 1099-R we received this year it shows that $1400 was the Roth 401(K) contribution withdraw, and $100 is the earning that is taxable.