Exceeded 401k Contribution

[ayubruin7777]

 I exceeded my 401k contribution limit in 2023, and have successfully withdrew the excess deferral and earnings by 4/15/2024. I am still working on my 2023 tax return, if I report the excess deferral as "other income", do I need to include earnings in my 2023 tax filing as well?

[dmertz]

The earnings are reportable on the tax return for the year in which they were distributed.  See page 26 of IRS Pub 560:  https://www.irs.gov/pub/irs-pdf/p560.pdf

[maglib]

@ayubruin7777 The IRS requires the 1099-R for excess contributions to be created in the year the excess contribution is removed the from your traditional or Roth IRA. Box 7 of the 1099-R will report whether you removed a contribution that was deposited in the current or prior year for timely return of excess requests.

you should not get one in 2024.

 For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made."(Pub 590-A)

 you will enter the 2023 Form 1099-R on your 2023 return as shown. 

You would create a 1099-R for 2023 although not received:

only the Box 2a gains amount is taxable on your 2023 return, since you are withdrawing the excess contribution prior to tax filing due date.

You don't need an entry for Box 3.  Codes P and J go in Box 7.

You can reach out to your broker for their Federal ID number.

The 1099-R is not a 'substitute' one.

You will need to indicate 'other reason' for an exception to the Early Withdrawal Penalty if you're under 59.5 and add the Earnings amount.  This is under Other Tax Situations > Additional Tax Payments > Extra Tax on Early Retirement Withdrawals.

1. Login to your TurboTax Account 
2. Click on "Search" on the top and type “1099-R” 
3. Click on “Jump to 1099-R” and enter all your 1099-Rs
4. Click "Continue" on the "Review your 1099-R info" screen
5. Answer all the questions and make sure you enter the net contributions prior to 2023 on the "Enter Prior Year Roth IRA Contributions" screen
6. On the "Do you have any Excess Roth Contributions" answer "Yes"
7. On the "Enter Excess Contributions" screen enter the total excess contribution from 2023.

The excess contribution will be resolved in 2023 when you enter the Form 1099-R. 

you should not get another 1099R in 2024 as it was paid back timely

[dmertz]

Code J and Pub 590-A have nothing to do with this distribution from a 401(k).  Code J is only used with distributions from a Roth IRA.

It seems that the corrective distribution occurred in 2024, so the earnings will be present in boxes 1 and 2a on a code-8 2024 Form 1099-R (or, if the excess a contribution to the designated Roth account in the 401(k), codes B and 8 together).

[ayubruin7777]

Thank you. I will only report excess deferrals as other income in 2023 tax return and earnings in 2024 tax return.

Should I include any 1099R form in my 2023 tax return although I have not received it? 

[dmertz]

No Form 1099-R for this on your 2023 tax return, just report the actual excess as other income as you originally indicated.

[maglib]

@ayubruin7777  report both in 2023.  No 1099R should be received in 2024.    It is easiest to report as if you received a 1099R for 2023 as both were removed prior to the due date of the return.    I had erroneous first sentence, now fixed.  You will pay tax on the earning of the IRA and the income should be added back when you go through the interview and also when you say you paid back an excess contribution.  I have always told people to put it in as a 1099R.

[dmertz]

@maglib , you are confusing the requirements for reporting earnings on returned IRA contributions with the requirements for reporting earnings on distributions of of excess employee 401(k) contributions.  No IRA is involved in this case.

I would expect two 2024 Forms 1099-R to be received in early 2025, one with code P for the amount of excess distributed which will already have been reported as 'other income' on the 2023 tax return and can therefore be ignored, and one with code 8 for the earnings that are reportable on the 2024 tax return.

[maglib]

Form 1099-R - Excess 401k Contributions. How can we help? Code "P" indicates that the taxpayer contributed more than allowed to a 401k, IRA, etc. through payroll withholding.
Yes a 1099-R should be filed.