Excess 401(k) contribution clarification question - ignore TurboTax help instructions?

[samcali]

I have a question regarding the latest post on this thread (https://ttlc.intuit.com/community/retirement/discussion/excess-401k-contribution-withdrawn-w2-correc...).  I'm unable to post on that thread so I'm starting this thread:

Here in California, we have until Oct 16, 2023 to file our taxes due to flooding this year.  

In September, I discovered that I overcontributed to my 401(k) in 2022 (I worked for two different employers, using two different 401k administrators).

I contacted my second 401k admin and got a check for the excess contribution (net the losses I had for 2022), which I then deposited.

In the referenced post above, @Rachel_W provides a method to report the excess using "Other Earned Income".  However, in TurboTax 2022, the instructions are to create a 1099-R for 2022 (I won't get the actual 1099-R until January 2024), fill in box 1 and 2a with the excess (gross), and use code P (which notes it's for 2021 in the software) in box 7.    @DawnC notes in May 29, 2020 that the original instructions given by @Rachel_W is correct.

So could an expert please confirm that I should ignore the instructions given in TurboTax help and instead, I should use the "Other Earned Income" method.  

For reference, this is from the pop up model that shows when TurboTax sees the excess:
"1. Report the excess deferral on your 2022 return in the Income section for Retirement Plans and Social Security whether or not you received a Form 1099-R before you file your return. Enter as much information as you can. Report the excess deferral amount in boxes 1 and 2a, and use code P in box 7. Indicate that this is a 2023 Form 1099-R.

2. In 2023, you will probably receive two Forms 1099-R. One reports the excess deferral amount. The other reports the earnings on the excess deferral. Enter both of these forms in your 2023 return, and we'll only add the earnings to your 2023 income."

Also, @DawnC , when you state "Next year, you will receive the 1099-R with the code P which you will enter on your 2020 tax return - but it will not be taxed since you are correcting the issue now by adding the excess contribution to your income on your 2019 return. ", will I not get taxed when I enter box 1 and 2a for my 2023 taxes?  How should I enter the 1099-R I'll receive in January 2024 so I don't get taxed again?

The TurboTax pop up modal instructions #2 implies that by following its instructions, TurboTax won't  consider the excess deferral amount as income.

[fanfare]

Reporting as "other income" is not correct.

the correct line to report 401k earnings allocable to 2022 excess is 2022 Line 5b.

Only positive earnings are reported.

A fabricated 2023 1099-R should have the desired effect.

if you have a net loss, negative earnings are not deductible; Line 5b should be zero.

Since you said "removed in [2023]" and  "net the losses", there is nothing for you to do ; 2022 Line 5 is EMPTY.

@samcali 

[samcali]

So you be clear, you're saying that the advice given in the thread I linked in my original post is incorrect. I believe you're saying I should follow the instructions in TurboTax to report a 1099-R for 2022 (although I won't get a 1099-R for the check I received for the excess until Jan 2024). 

However, the instructions in the TurboTax modal mention nothing about line 5.

[fanfare]

No you have to indicate a 1099-R for 2023 with code P.

To be clear, based on what you posted, you don't have to do anything.

@samcali 

[fanfare]

Update:

Along with any earnings, my tax software puts the amount of distribution Box 1 on 2022 Line 5a, even though the distribution was actually in September 2023.

As far as I can tell, this cannot be avoided.

@samcali 

[fanfare]

If you don't have any positive earnings, don't try to enter a 1099-R and Line 5 will be EMPTY.

@samcali