401k Excess contribution in 2024

You do not pay a penalty for an excess deferral. But 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 (with the steps below) and again when you receive it as a distribution (reported on Form 1099-R). You can't include the excess amount in the cost of the contract even though you included it in your income

You must include the excess deferral in your wages in the year the excess deferral happened. 
 

1. Login to your TurboTax Account 
2. Click "Federal" from 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 "2024 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

@MaryK4 

hi Mary thank you for your advise.

what shall I do with the loss of $30.19 and where do I enter this in TT?

The $1,024 excess deferral will be reported in your 2024 tax return as MaryK4 explained in her response. 

 

The loss will have to be reported next year on your 2025 tax return:

 

1. Login to your TurboTax Account 
2. Click "Federal" from 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 reportable income" and click "Start"
6. Answer "Yes" to "Any Other Taxable Income?"
7. Enter "Loss on Excess Deferral Distribution” and enter the loss as a negative number (-$30)

 

Please see Pub 525 for additional information.

@MaryK4 @DanaB27 

many thanks 

 

would like to clarify 

do I enter $1024 or $993.19 (1024-30.19) for the excess 401k contributions 

On the 2024 return you will enter $1,024 for the excess 401(k) contribution. 

@DanaB27 

 

Thank you so much for your responses.

clarifying your note, i don't enter my loss of $30.19 in 2024 tax returns?

Therefore your steps is to be done in my 2025 tax returns.

 

 

Yes, that is correct the loss will be reported on your 2025 return. 

 

Pub 525: "Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you."

Hi,

 

I over contributed to W2 401k plan. I contacted company HR and financial institute. In case the overpayment is withdrawal and 1099-R issued after April 15, 2025, could I still claim the excess amount in Turbo Tax based on the steps listed above? 

 

Thank you! 

Yes, you must include the excess deferral in your wages in the year the excess deferral happened. 

 

 

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 "2024 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 2025 tax filing due April 15, 2026: 

2025 Forms 1099-R will be issued reporting the excess.

• Form 1099-R with Code P in box 7 can be ignored if you reported the excess as described above in 2024. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2025.

 

 

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 (with the steps above) 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.

 

@zen6933 

Since my 2024 W-2 has it listed, I would prefer to create the 1099-R.  However, when entering data into Box 7 code P seems incorrect as it states - "P-Return of contribution taxable in 2023"  shouldn't it be 2024?

 

Also - since I'm over 59 1/2 can I consider it an distribution where I'm not taxed so much?  If so, I can I do that?

@DanaB27 

 

Thank you so much! Information is really helpful.

If you use the adding the 2025 1099-R with code P method you will get a follow-up question where you can indicate that this is a 2025 Form 1099-R.  Then TurboTax know code P means taxable in 2024. Therefore, you can ignore that it states "taxable in 2023". After entering the 2025 Form 1099-R with code P TurboTax will add it to line 1h on Form 1040.

 

No, since it wasn't taxed when you made the contribution the distribution has to be included in your taxable income and is taxed at your regular tax rate.

 

@danwhitmire1962