Individual 401k excess contribution
I just learned that I over-contributed to my individual/solo 401k because I added to the plan more than my net earnings from self-employment. I am trying to figure out what my best options are:
1. Withdraw the excess contribution and any gain (the gaining is not significant at all). My understanding is I will receive a 1099-R and the excess contribution and gain will be taxable in the year that it is withdrawn. Is it correct? It does not make sense to me though because since the excess contribution does not come from my new self-employment income, I already paid tax on it. Why do I have to pay tax again?
2. If I withdraw the excess, how do I report on 2021 tax return? Do I still enter the amount that I over contributed or the amount after the excess is withdrawn?
3. Is there any other way to avoid paying tax now, such as transferring the excess to a different retirement plan?
