How to account for loss attributable to excess deferrals on 401K? I lost money due to market and was faced a loss of $500.

[vsundar]

I made an excess investment of $10K on 401K due to multiple jobs. I have received a 1099R reporting the amount returned to me. However, I lost $500 due to the market scenarios. How do I report this as well as 1099R doesn't have this?

[DanaB27]

Assuming you made the excess deferral in 2022 and received it in 2022 all you need to do is enter your Form 1099-R. 

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Enter the information from your 1099-R

If this was a 2021 excess deferral returned before April 15th, 2022 then the 10K excess deferral should have been reported in your 2021 tax return and the loss will have to be reported on your 2022 tax return:

1. Login to your TurboTax Account 
2. Click "Federal" from 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 reportable income" and click "Start"
6. Answer "Yes" to "Any Other Taxable Income?"
7. Enter "Loss on Excess Deferral Distribution” and enter the loss as a negative number (-$500)

[vsundar]

Hi,

Thanks for the information. 

The excess deferral is for year 2022, was issued in Dec 2022 by the 401K provider and so does it mean the ($500) loss should be reported in 2023 earnings?

I also received another notification that they made a mistake in calculation and made another payment of $386 but this was in Jan 2023. Should I report this for year 2022? or Is this applicable only in 2023?

Thanks!

[LindaS5247]

For excess 401K deferrals the gain/loss is reported in the year received.  If you received the gain/loss in 2022 you would report it on your 2022 Income Tax Return.  If you received the gain/loss in 2023 you would report it on your 2023 Income Tax Return.

The excess deferrals are taxable in the year for which they were deferred.  So any deferrals returned are taxable on the tax return for the year in which you deferred that money.

So the excess deferral returned for 2022 would be included on your 2022 tax return.  The $500 loss would be included on the tax return for the year in which it was received.  So if you received the loss in 2023, it would be reflected on your 2023 tax return. 

Depending on what the extra  $386 was attributable to, would determine what year you would  claim it.  If this $386 is additional gain/loss then it would go on your 2023 tax return because you received it in 2023.  If it was additional excess deferrals returned, that were for deferrals in 2022 , it would go on your 2022 tax return.

Your loss on your excess deferral should be reported in TurboTax as per DanaB27.  

Assuming you made the excess deferral in 2022 and received it in 2022 all you need to do is enter your Form 1099-R. 

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Enter the information from your 1099-R

If this was a 2021 excess deferral returned before April 15th, 2022 then the 10K excess deferral should have been reported in your 2021 tax return and the loss will have to be reported on your 2022 tax return:

1. Login to your TurboTax Account 
2. Click "Federal" from 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 reportable income" and click "Start"
6. Answer "Yes" to "Any Other Taxable Income?"
7. Enter "Loss on Excess Deferral Distribution” and enter the loss as a negative number (-$500)

Click here for more information regarding reporting excess deferrals.

[Edited 02/15/2023|1:29 pm PST] @vsundar

[vsundar]

Hi,

Apologies for the follow up as I am still confused a little.

So let me re-state the issue:

1) I have made a excess deferral of $10,445 for 401K for Year 2022.

2) My 401k Provider returned $9641 - 10% Tax deduction in Dec 2022 and this is the excess deferral reported in form 1099-R. The provider also mentioned a loss of $406.06 may be reported as a -ve amount on "Other income line" of 2022 tax return

3) Due to an error in calculation, the 401K provider also returned another excess deferral of $397.66 - $11.28 (Loss attributable to excess deferral) = $386.38 in Jan 2023. However there is no 1099-R form for this and they mention they will provide a 1099-R in Jan 2024 while the loss of $11.28 can be reported in other income.

Now I have included 1099-R in my return for 2022 that is to the tune of $9641.

Should I now declare the following in other income: 1) A excess deferral loss of $406.06 2) A excess deferral income of $386.38 3) A excess deferral loss of $11.28 totally amounting to -$20.

If not, where should I declare this excess deferral income of $386.38 as 1099-R will be available in only 2024 as per 401K provider?

Also, will I have to pay tax again in 2024 since 1099-R will be available only then?

Thanks!

[LindaS5247]

Gains and losses on excess deferrals returned are taxable/reportable in the year they are received.

Returns of excess deferrals are reported in the year for which the deferral was made.

So yes, your 1099-R for $9641 should be included on your 2022 tax return.  The corresponding loss can also be reported as a negative value in "other income" if it was reported to you in 2022.

If the excess deferral being returned of $386.38 is an excess deferral and not a gain it would properly be reported on your tax return for the year that deferral was made in.  If that is a return of deferrals made in 2022 it should be reported on your 2022 tax return.  If it is a gain associated with the excess deferral it would be reported on your 2023 tax return since you received it in 2023.

Your 401K provider should be providing you with a Form 1099-R for 2022 if this $386.38 is a return of an excess deferral made in 2022.  I would contact your 401K Provider if they are doing something other than this.

If it is a gain associated with a 2022 excess deferral than you would receive the 1099-R in early 2024 and report it on your 2023 tax return.

Assuming you made the excess deferral in 2022 and received it in 2022 all you need to do is enter your Form 1099-R. 

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Enter the information from your 1099-R

Your loss on your excess deferral should be reported in TurboTax as follows: 

1. Login to your TurboTax Account 
2. Click "Federal" from 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 reportable income" and click "Start"
6. Answer "Yes" to "Any Other Taxable Income?"
7. Enter "Loss on Excess Deferral Distribution” and enter the loss as a negative number (-$500)

Click here for more information regarding reporting excess deferrals.

Click here to contact Turbo Tax for assistance.