Hello,
My company has a generous 401k match so I don't want to remove the excess contributions. I've done the math and come out ahead even when double-taxed. I joined company B shortly after leaving company A in 2022 and despite both employers being under the same company for 401k provider (Fidelity), there was no automation put in place to stop contributions when combining employers. Thus, I've put around $2,000 more into my 401K this year (not counting match) than allowed by the IRS.
How do I handle this in Turbo Tax? I was told the excess deferral (let's say $2,000) would have to be put on 1040 line 1h. Or will Turbo Tax handle that automatically? I understand it's not a common situation as most people return the excess.
Source: If the total amount you (or your spouse if filing jointly) deferred for 2022 under all plans was more than $20,500 (excluding catch-up contributions as explained later), include the excess on line 1h.
Yes, 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.
Please follow the steps below to enter your excess deferral:
You will see the amount on line 1h on Form 1040.
Please see Pub 525 for additional information.
By “again when you receive it as a distribution” do you mean when I turn 65 (or whatever age I decide to take out the 401k money) I will be taxed again?
Makes sense, appreciate it!
Yes, when you are retiring (59 1/2 older) and you take the distribution from a 401(k) they are always taxable unless you made after-tax contributions but for the excess, you cannot claim that you paid tax on it already. Therefore, you will be taxed again on the excess deferral.