I have a 401k plan that allows both traditional (pre-tax or Roth) contributions as well as after-tax contributions. I maxed out the total contribution limit in 2019 (traditional and after-tax).
I changed employers in 2020. At the end of April, I requested the after-tax contributions be rolled over to a Roth IRA account (pre-tax went elsewhere). The process took awhile. During this time, my previous employer contributed an additional match to my 401k account as part of a true-up for 2019 contributions. I did not notice this. The additional match ended up rollover over to my Roth IRA.
The 401k company sent me a letter in June notifying me that they tried to refund the $100 (after-tax basis $110) because it put me over the total 2019 401k contribution limit. However, by this time the money had rolled over to the Roth IRA already. They indicated they would amend my 2020 1099-R with:
I called the Roth IRA company and asked for this "excess contribution" to be returned to me. They sent me a check for $100 + $5 gains.
I assume I have to amend my 2019 tax return. How do I do this in 2019 Turbotax?
Thank you!
Edit: crossed out incorrect information.
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The employer match is always before tax money and could not be rolled to a Roth IRA. In any event you cannot "fix" an excess deferral with an IRA distribution, you simply will pay the tax again when the money is distributed form the Traditional IRA and the tax on the 1099-R with the code E. That double tax is the penalty for not timely removing it.
The code E on a 2020 1099-R will be reported next year on your 2020 tax return.
It seems to me that they are considering my after tax contributions to be the excess because they are reporting an after tax basis. In addition, the pretax monies were rolled into a 401k in the same 401k company... just a different employer.
You said: During this time, my previous employer contributed an additional match to my 401k account as part of a true-up for 2019 contributions.
Since employer match can only be before that money then that could not go to a Roth IRA, but as I said, that is immaterial because once the 401(k) is closed then it it not possible to return any excess from it, hence the Code E 1099-R rather than a normal return of excess with a code P or 8.
There was no need to make any IRA distribution.
User @dmertz do you concur or have a different opinion?
But why would they roll over pretax money into Roth IRA... let me double check what was rolled over to the 401k...
I confirmed the $100 match was automatically rolled over to the current 401k by the 401k company. But this match put my overall 2019 401k contribution over the limit (pre-tax + after-tax non-Roth = $56K limit). That excess was rolled over to my Roth IRA, and then distributed to me by the Roth IRA company.
Again, it was not necessary to remove it at all since the 2020 1099-R with the code E is the *only* thing that must be reported or done.
@dmertz ?
The amount that ended up being an excess contribution to the 401(k) was ineligible for rollover to the Roth IRA, so it constitutes an excess contribution to the Roth IRA and it was correct to remove it from the Roth IRA by a return of excess contribution. Except for the $5 of earnings accompanying the return of excess contribution, the amount returned would not be taxable as income because was after-tax money, not deferred income.
The plan also needs to correct the original Form 1099-R reporting the code 1, 2, 7 or G distribution from the 401(k) so as not to include the amount reported on the code E Form 1099-R.
@dmertz Thanks for the clarification, but is it not correct that employers match are always before tax, so how could that end up in a Roth?
@dmertz wrote:The plan also needs to correct the original Form 1099-R reporting the code 1, 2, 7 or G distribution from the 401(k) so as not to include the amount reported on the code E Form 1099-R.
@dmertz, just want to clarify, do you mean that the 401k administrator needs to correct their 1099-R? I asked the 401k administrator and they do not feel it should be updated. I also checked with the Roth IRA administrator and they said they would issue a 1099-R coded with "excess contribution removal" (the representative did not know the exact code).
Would you happen to know what I should amend on my 2019 tax return? Perhaps I should create a substitute 1099-R?
Thank you.
Yes. The code G Form 1099-R must be corrected to exclude the amount that was an excess contribution so that it shows only the amount that was actually eligible for rollover. Your 2019 tax return generally should be amended to reflect this corrected Form 1099-R. However, it won't change anything but the amount on line 4c of Form 1040, so might be sufficient to not amend and just respond with your explanation if the IRS questions this.
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