Excess 401K contribution not yet withdrawn

[guichun.li]

I had excess contribution of 401k in 2018 due to miscalculation when switching job. I have requested our HR department to contact the retirement account manager to withdraw the amount of excess contribution. But current haven't received confirmation about whether this can be done before April 15. Shall I still report it as 1099-R items? What else needs to be reported other than the amount of excess contribution? Shall I select 8 - Return of contribution taxable in 2018 in box 7? Please advice, thanks!

[Rachel_W]

Regardless of whether your HR Department is able to distribute your excess contribution, you should report the excess contributions on Line 1 of your 2018 Tax Return by following these steps in TurboTax Desktop:

• Open your return
• Click on the "Federal Taxes" Tab
• Click on the "Wages & Income" Tab
• Click on "I'll choose what I work on"
• Scroll down to "Less Common Income" and click "Show More"
• Select "Miscellaneous Income" and click "Start or Update"
• Select "Other income not already reported on a Form W-2 or Form 1099" and click on "Start"
• Answer the Question "Did you receive any other wages?  Yes"
• Click "Continue" through the questions until you get to "Any Other Earned Income"
• Answer "Yes" to "Did you earn any other wages?"
• Indicate "Other" as "Source" of Other Earned Income and click "Continue"
• For the description enter "2018 Excess 401K Deferrals" and click on "Done"

If your excess is distributed, you will receive a 2019 Form 1099-R in 2020 showing the refund with a code "P" in box 7 which you can ignore if the excess deferral is reported as suggested above. However, the earnings will be reported on a separate 2019 Form 1099-R with a Code "8" in Box 7 that should be reported on your 2019 tax return.

NOTE: There is currently an e-filing issue within TurboTax related to excess contributions so you will need to mail in your return. You can check out this TurboTax FAQ for more information: Excess 401(k) Contribution Preventing E-filing. 

[jbowdish6049]

Hello Rachel_W,

I have over contributed to my 401k in 2020.  I am running out of time to have the 401k invest company to return the excess amount before May 17th and have my HR pay role to issue an updated W-2.  Can you please help me on what steps in TurboTax I should be following.  I'm using Turbotax Deluxe for 2020? 

Thank you!

Jing Bowish

[macuser_22]

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@jbowdish6049 wrote:

Hello Rachel_W,

I have over contributed to my 401k in 2020.  I am running out of time to have the 401k invest company to return the excess amount before May 17th and have my HR pay role to issue an updated W-2.  Can you please help me on what steps in TurboTax I should be following.  I'm using Turbotax Deluxe for 2020? 

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Sorry,  but the date to remove a 401(k) excess is not th due date of the tax return, by law it is April 15 of the year after the contribution.   After that it cannot be returned and must stay in  the account but it still taxable in the year of the excess contribution.    It will be taxed again when finally withdrawn after retirement - that is the penalty for missing the April 15 date.

Excess 401(k) deferrals should be reported in:
(There are several screens to click through to get to the right place)

Miscellionious Income ->
Other Income not reported on a W-2 ->
Other wages (yes) ->
House Hold employee (Continue) ->
Sick Pay (Continue) ->
Other earned income (yes) (Includes excess salary deferrals)->
Source of income (other) ->
Any other income - enter the amount of the excess deferral and an explanation.

This will add the returned excess to your 2020 wages on line 1.

For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf