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You do not need to wait for a 1099-R next year that will probably require you to amend your 2016 tax return to report the excess on line 7 of your tax return - it can be entered this way and then ignore the 1099-R when it comes.
Excess 401(k) deferrals should be reported in:
Miscellionious Income ->
Other Income not reported on a W-2 ->
Other wages (yes) ->
House Hold employee (Continue) ->
Sick Pay (Continue) ->
Other earned income (yes) ->
Source of income (other) ->
Any other income - enter the amount and an explanation.
For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf
Quote from pub 525
"Excess deferrals. If your deferrals exceed the limit, you must notify your plan by the date required by the plan. If the plan permits, the excess amount will be distributed to you. If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year.
You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. File Form 1040 to add the excess deferral amount to your wages on line 7. Do not use Form 1040A or Form 1040EZ to report excess deferral amounts.
Excess not distributed. If you don't take out the excess amount, you can't include it in the cost of the contract even though you included it in your income. Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution.
Excess distributed to you. If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, don't include it in income again in the year you receive it. If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. Any income on the excess deferral taken out is taxable in the tax year in which you take it out. If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income.
You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. Use the following rules to report a corrective distribution shown on Form 1099-R for 2016.
If the distribution was for a 2016 excess deferral, your Form 1099-R should have the code 8 in box 7. Add the excess deferral amount to your wages on your 2016 tax return.
If the distribution was for a 2016 excess deferral to a designated Roth account, your Form 1099-R should have code B in box 7. Do not add this amount to your wages on your 2016 return.
If the distribution was for a 2015 excess deferral, your Form 1099-R should have the code P in box 7. If you didn't add the excess deferral amount to your wages on your 2015 tax return, you must file an amended return on Form 1040X. If you didn't receive the distribution by April 15, 2016, you also must add it to your wages on your 2016 tax return.
If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code 8 in box 7. Add the income amount to your wages on your 2016 income tax return, regardless of when the excess deferral was made.
Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution.”
"
You do not need to wait for a 1099-R next year that will probably require you to amend your 2016 tax return to report the excess on line 7 of your tax return - it can be entered this way and then ignore the 1099-R when it comes.
Excess 401(k) deferrals should be reported in:
Miscellionious Income ->
Other Income not reported on a W-2 ->
Other wages (yes) ->
House Hold employee (Continue) ->
Sick Pay (Continue) ->
Other earned income (yes) ->
Source of income (other) ->
Any other income - enter the amount and an explanation.
For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf
Quote from pub 525
"Excess deferrals. If your deferrals exceed the limit, you must notify your plan by the date required by the plan. If the plan permits, the excess amount will be distributed to you. If you participate in more than one plan, you can have the excess paid out of any of the plans that permit these distributions. You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. The plan then must pay you the amount of the excess, along with any income earned on that amount, by April 15 of the following year.
You must include the excess deferral in your income for the year of the deferral unless you have an excess deferral of a designated Roth contribution. File Form 1040 to add the excess deferral amount to your wages on line 7. Do not use Form 1040A or Form 1040EZ to report excess deferral amounts.
Excess not distributed. If you don't take out the excess amount, you can't include it in the cost of the contract even though you included it in your income. Therefore, you are taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution.
Excess distributed to you. If you take out the excess after the year of the deferral and you receive the corrective distribution by April 15 of the following year, don't include it in income again in the year you receive it. If you receive it later, you must include it in income in both the year of the deferral and the year you receive it. Any income on the excess deferral taken out is taxable in the tax year in which you take it out. If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income.
You should receive a Form 1099-R for the year in which the excess deferral is distributed to you. Use the following rules to report a corrective distribution shown on Form 1099-R for 2016.
If the distribution was for a 2016 excess deferral, your Form 1099-R should have the code 8 in box 7. Add the excess deferral amount to your wages on your 2016 tax return.
If the distribution was for a 2016 excess deferral to a designated Roth account, your Form 1099-R should have code B in box 7. Do not add this amount to your wages on your 2016 return.
If the distribution was for a 2015 excess deferral, your Form 1099-R should have the code P in box 7. If you didn't add the excess deferral amount to your wages on your 2015 tax return, you must file an amended return on Form 1040X. If you didn't receive the distribution by April 15, 2016, you also must add it to your wages on your 2016 tax return.
If the distribution was for the income earned on an excess deferral, your Form 1099-R should have the code 8 in box 7. Add the income amount to your wages on your 2016 income tax return, regardless of when the excess deferral was made.
Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Include the loss as a negative amount on Form 1040, line 21 and identify it as “Loss on Excess Deferral Distribution.”
"
Hello. I had received a Form1099R with amounts in Box 1 and 2A. The amt is for return of excess contributions made to a 401k Plan by a former employer. I had input the form into TT. However, no amounts transferred to Form 1040. Should the amount have been put into Form 1040 via TurboTax and why didn't TT "automatically" include the amount in Form 1040? Please help me understand. Or does this adding of income to FOrm 1040 in TT need to be done manually. PS The year is for 2018 and amounts were returned in the same year, 2018.
If the amount s/b included (which I believe it should be since it is in effect add'l taxable wages) , where? As a component of wages or other income? Finally, if there is any income or or loss on the excess contribution made, prior to it being returned, should it be separately reported as misc income? Please advise on each question.
Thanks very much for your assistance!
@divad1 wrote:
Hello. I had received a Form1099R with amounts in Box 1 and 2A. The amt is for return of excess contributions made to a 401k Plan by a former employer. I had input the form into TT. However, no amounts transferred to Form 1040. Should the amount have been put into Form 1040 via TurboTax and why didn't TT "automatically" include the amount in Form 1040? Please help me understand. Or does this adding of income to FOrm 1040 in TT need to be done manually. PS The year is for 2018 and amounts were returned in the same year, 2018.
If the amount s/b included (which I believe it should be since it is in effect add'l taxable wages) , where? As a component of wages or other income? Finally, if there is any income or or loss on the excess contribution made, prior to it being returned, should it be separately reported as misc income? Please advise on each question.
Thanks very much for your assistance!
It depends on what code is in box 7 and what year the excess occurred and what year on on the 1099-R.
Is this a 2019 1099-R? What is in box 7?
Thank you for this post. I made an excess contribution to my Roth 401k in 2019 and had the excess distributed back to me prior to April 15 2020. My excess contribution resulted in a loss and the amount sent back to me was less than I had excess contributed. However the 1099-R I received shows the same amount in box 1 "gross distribution" and box 5 "employee contribution". The 1099-R cover letter shows the correct amounts and the loss though. How do I deduct the loss? Shouldn't they have put the full amount of my excess contribution prior to the loss in box 5?
No, they only report this at gross distribution amount. Truly, I have not seen/heard of your particular situation so I am curious....when you state "my excess contribution resulted in a loss and the amount sent back to me was less than I had excess contributed" - It appears as though for that year the IRS already calculated the net difference. However, you can check this by retrieving your transcript for that year and see what the IRS has with respect to this 1099-R.
If what they have is what actually happened, then the information has already been adjusted, which is why you received less than expected back. Any other/further questions/elaborations on this, please ask! I would be more than happy to look further into this should you need me to.
Thank you for your reply. The loss is a result of negative investment performance in the funds the excess contribution was allocated to. After posting this question I did some more research and believe I found the answer. I am supposed to input the 1099-R into Turbotax exactly as I received it (not showing the amount of loss). Then on line 21 of form 1040 I enter an "other earned income" and label it "Loss on Excess Deferral Distribution" and put in the amount of the loss as a negative number.
@user314 wrote:
Thank you for this post. I made an excess contribution to my Roth 401k in 2019 and had the excess distributed back to me prior to April 15 2020. My excess contribution resulted in a loss and the amount sent back to me was less than I had excess contributed. However the 1099-R I received shows the same amount in box 1 "gross distribution" and box 5 "employee contribution". The 1099-R cover letter shows the correct amounts and the loss though. How do I deduct the loss? Shouldn't they have put the full amount of my excess contribution prior to the loss in box 5?
For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf
Report a loss on a corrective distribution of an excess deferral in the year the excess amount (reduced by the loss) is distributed to you. Include the loss as a negative amount on Schedule 1 (Form 1040), line 8, and identify it as “Loss on Excess Deferral Distribution.”
Enter as:
Miscellionious Income ->
Other reportable Income ->
Any Other Taxable Income (yes) ->
Description (enter "Loss on Excess Deferral Distribution" and amount as a negative number).
Good evening. I entered the loss on the excess deferral as suggested by putting it as a negative number in other taxable income. Now I'm at the last step of filing my taxes with TurboTax but when I click "transmit returns now" I get the "check this entry" error and bring me to the "other earned income" page of my return showing the loss and it says "wages, salaries, & tips worksheet: TP other earned inc shouldn't be less than zero". It seems like it won't let me proceed until I remove the negative number. What should I do?
Sole Proprietorship here. In early March 2020 I made an employee (self) 401k contribution of $15,000 for the year 2019 (which is permitted) and a couple of weeks later discovered a computational error so the contribution was $3,000 to high. I called Fidelity and they took the $3,000 out of the solo 401K and deposited it back into the taxable account. The solo 401k is cash and no income was earned on the $3,000 while in the solo 401k. On the 2019 tax return I showed a $12,000 contribution, which was the correct net.
I now have a 1099-R from Fidelity for the 2020 correction of the excess deferral, referencing in Box 7 "Distributions under Employee Plans Compliance Resolution System."
1. Am I taxed in 2020 on the return of the excess deferral (seems odd but perhaps that's the law for making a mistake even with a prompt correction).
2. Other?
@J295 wrote:
Sole Proprietorship here. In early March 2020 I made an employee (self) 401k contribution of $15,000 for the year 2019 (which is permitted) and a couple of weeks later discovered a computational error so the contribution was $3,000 to high. I called Fidelity and they took the $3,000 out of the solo 401K and deposited it back into the taxable account. The solo 401k is cash and no income was earned on the $3,000 while in the solo 401k. On the 2019 tax return I showed a $12,000 contribution, which was the correct net.
I now have a 1099-R from Fidelity for the 2020 correction of the excess deferral, referencing in Box 7 "Distributions under Employee Plans Compliance Resolution System."
1. Am I taxed in 2020 on the return of the excess deferral (seems odd but perhaps that's the law for making a mistake even with a prompt correction).
2. Other?
What code is on box 7?
@J295 wrote:Sole Proprietorship here. In early March 2020 I made an employee (self) 401k contribution of $15,000 for the year 2019 (which is permitted) and a couple of weeks later discovered a computational error so the contribution was $3,000 to high. I called Fidelity and they took the $3,000 out of the solo 401K and deposited it back into the taxable account. The solo 401k is cash and no income was earned on the $3,000 while in the solo 401k. On the 2019 tax return I showed a $12,000 contribution, which was the correct net.
I now have a 1099-R from Fidelity for the 2020 correction of the excess deferral, referencing in Box 7 "Distributions under Employee Plans Compliance Resolution System."
1. Am I taxed in 2020 on the return of the excess deferral (seems odd but perhaps that's the law for making a mistake even with a prompt correction).
2. Other?
What code is on box 7?
Answer: The Code in Box 7 is "E" (so on back of the 1099-R it states this is "Distributions under Employee Plans Compliance Resolution System (EPCRS)"
Hello,
I have made excess contribution in the current year, and will get excess amount refunded next year. The excess contribution is made with after-tax dollars, but company match for the same is considered before tax.
1. Will I need to pay tax and/or penalty on the after-tax contribution part?
2. Will I need to pay both tax and early withdrawal penalty on the company match, which is pre-tax?
Thanks.
In this situation you will probably get a corrected W-2.
The company will take back its contribution
and you will have to amend because you took a deduction on your own contribution returned to you.
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