Handling excess contributon to 403b Roth account in TT

[pkg1994]

I changed jobs last year and had two 403b plans and one 457b plan. Since I had reached the $22,500 contribution limit at my first employer the amount I contributed to the second employer is now excess contribution. This second account is a 403b Roth account so would be counted as post tax. I am working with my current employed to withdraw the amount but it may not happen before April 15 this year. How do I report this on TT so I am not paying tax a second time reporting this as other income.

Two I also have $4000 in my 457b but TT is adding this to the excess contribution in the 403b and reporting the whole amount as excess. This $4000 being in the 457b plan should not be subject to a joint limit with 403b but should have its own $22500 limit. How do I worked in TT so the 457b amount of $4000 is not shown as excess contribution.

[DanaB27]

Please be aware, 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 and again when you receive it as a distribution. You can't include the excess amount in the cost of the contract even though you included it in your income.

If you receive the distribution before April 15th then you will get 2024 Form 1099-R codes B and P in box 7 for the returned excess contribution to the 403b Roth account. Don’t add this amount to your wages on your 2023 return.

If you had earnings you will get a 2024 Form 1099-R with code 8 and this has to be reported on your 2024 tax return.

If you receive the distribution after April 15th then the distribution will be taxable in 2024 and the custodian will issue you a2024 Form 1099-R.

Yes, if you’re in a 457(b) plan, then you have a separate limit. You can ignore the warning in TurboTax.

[pkg1994]

Thanks Dana. It would appear that there is not enough time to receive the excess contribution before April 15.  In this case, how do I report the excess contribution? Since it is in a 403b Roth account, I have paid taxes on it already.

[DanaB27]

You don't have to do anything else on your 2023 return to report the excess.

If you receive the distribution after April 15th then you should receive a 2024 Form 1099-R showing the distribution as taxable and you will enter it on your 2024 tax return.

[agm1420]

Hi,

I withdraw the excess amount and the earnings last month. I am filing a substitute 1099-R through Turbotax. Should I deduct the excess contribution from my W2, line 12a? I know I will receive 1099-R for 2024 tax year. What is the proper way to fix the issue? Thanks.

[agm1420]

Hi Dana,

Just wanted to clarify your answer. You are saying that withdraw the excess contribution and the earnings before April 15th and don't show it this year's tax!? And add it when you get the 1099-R on tax year 2024! How IRS knows that I withdraw the amount? Should I deduct the over contribution amount from this years tax? Please clarify.  Thanks.

[DanaB27]

It depends if you made pre-tax or after tax contributions. The previous reply was after-tax excess contribution to a Roth 403b account, removed after April 15th.

You will not make any changes to your W-2, enter it as shown.

The IRS will get the 2024 Form 1099-R that will show that you removed the excess.

If you made pre-tax contributions then you must include the excess deferral in your wages in the year the excess deferral happened. 

Please follow the steps below:

1. Login to your TurboTax Account 
2. Click "Wages & Income" (under Federal) on the left side of your screen
3. Scroll  down to "Less Common Income" and click "Show More"
4. Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
5. Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
6. On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
7. Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
8. On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
9. On the "Any Other Earned Income" screen enter "2023 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

If you receive the distribution of the excess deferral and earnings by April 15th then please note for the Tax Year 2024 tax filing due April 15, 2025: 

2024 Forms 1099-R will be issued reporting the excess.

• Form 1099-R with Code P in box 7 can be ignored if you reported the excess as described above in 2023. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2024.
   

Please be aware, 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 and again when you receive it as a distribution. You can't include the excess amount in the cost of the contract even though you included it in your income.

Please see Pub 525 for additional information.

@agm1420 

[pkg1994]

Thanks Dana. This was a after-tax contribution to 403b Roth. Fortunately, I will be getting the excess amount withdrawn before April 15 and will get the anount in a check from the custodian. 

How do I handle this on Turbotax. I am having two issues in TT that I need help on:

1. Turbox is adding the excess contribution to 403b and the $4K contributed to 457b as excess contributions. Since 403b and 457b have their separate limits of $22.5K so the $4K in 457b should not be included in excess. How do I correct this in TT so the 457b amount is not included in the excess?

2. What do I need to do in TT for the 403b excess amount that is withdrawn before April 15. Since I have already paid taxes on it, it should be handled as if there is no excess this year.

[DanaB27]

You don't need to make any corrections and can ignore the warning in TurboTax since you fixed the excess deferral and you have separate limits 403b and 457b. There isn't a penalty calculated on excess deferral, therefore, you can ignore the TurboTax warning.

You don't need to add the 403b excess anywhere since it was after-tax and you removed it before April 15th. 

@pkg1994