Excess distribution from Self 401K

Forum|Forum|5 years ago
March 4, 2021
1 reply
9 views

I am self employed & contribute to a self-401K (Solo 401K). In December 2020, I thought I had over-contributed for 2020 & requested a distribution of excess contribution of $2000. And the brokerage sent me the check & a 1099-R with Box 1 & 2a with: $2,200 ($2000 contribution + $200 earnings), with Box7=08.

Now doing my taxes, I realize that I shouldn't have requested that excess contribution withdrawal (I had forgotten about a gig I had done early in the year) and now the $2000 is showing up twice as income from both 1099-MISC & the 1099-R and I am getting taxed twice. Is there any way to reconcile/fix this so it shows up as income only one one.

Thanks!

TurboTax Self Employed Online

dmertz

Level 15

As you rightly pointed out, only $200 of this distribution is taxable, not $2,200. You could try to get the solo 401(k) trustee to correct the Form 1099-R to show only $200 as the taxable amount, but they are unlikely to do so because they likely do not know the structure of your company whether you take a self-employed retirement contribution or are paid on a W-2 and will just keep the Form 1099-R as is by assuming that you are paid on a W-2. This standardizes the way that they report this type of distribution.

That leaves you with two options. You can prepare a substitute From 1099-R (Form 4852) showing only $200 in box 2a, giving you the opportunity to provide a detailed explanation as to why only $200 is taxable. However, preparing Form 4852 will require that you paper-file. Alternatively, you could enter negative $2,000 as an item of Other Income. This provides little space to provide an explanation, but it allows you to e-file.

chinchu-supAuthor

Level 2

Thanks @dmertz.

I had also reached the same conclusion. Some of the google searches indicate that putting a negative income raises an alert in TurboTax & it wont allow an eFile. Do you know for sure that it allows an eFile & do you have any recommendation for what description to provide with the negative 2000 income so it doesn't raise an audit risk with the IRS.

Thanks again !

dmertz

Level 15

I don't see anything in TurboTax when I enter an item of negative other income that it prevents e-filing, but I don't know for sure. I do know that including Form 4852 prevents e-filing.

If I needed to do this myself, I would file Form 4852 and paper-file. This would give me plenty of space to provide explanation that only $200 of the returned contribution is taxable because the remaining $2,000 of the distribution is not deducted on this tax return as part of the self-employed retirement deduction and that it does not need to be added back to wages because the excess contribution was not the result of an elective deferral made through an employer who reported wages in box 1 of a Form W-2 reduced by the amount of the elective deferrals. (That's bit run-on. It could be cleaned up.)