Over contributing 401k in 2022

1) It doesn't matter which plan returns the excess.

2) You only receive your contribution plus any earnings.

3) There isn't a penalty to pay for excess contributions to a 401(k). But 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.

4) It must be removed by April 15th, 2023 to avoid double taxation. 

You must report the excess on your 2022 return regardless if you remove it or not. Please follow these steps to report a 2022 excess 401(k) deferral on your 2022 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 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 "2022 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

If you receive the distribution of the excess deferral and earnings then please note for the Tax Year 2023 tax filing due April 15, 2024: 

2023 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 2022. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2023.

Thanks for your quick help @DanaB27 

1) my second question was actually that "will my employer contribution part also will be returned to my employer OR it will be left in my account?"

2) If I don't do ROE (just claim as misc. income on my 1040), I can wait till after 59 (or 65) after I retire for the second time it gets taxed when I try to get 401k distribution, is my understanding correct?

Thanks again.

Dave

1. The matching employer contribution will be returned to the employer.
2. Yes, you can decide when to take the distribution (wait until you retire). Yes, you will be taxed a second time when you get your 401(k) distribution, it will be taxable as a regular 401(k) distribution. The first time is when you report it on your 2022 return.

Thanks again @DanaB27 for your help.

So my understanding is that one option is:

1) I do NOT need to inform 401k management company to return my excessive contribution at this time

2) I do NOT need to inform my employer anything or ask them to take action at this time

3) On 2022 1040 tax filing, file the excessive contribution amount according to the steps in your message (pay federal and state tax on this amount)

4) Wait till I retire in the future (59 or 65) to get distribution to get tax again.

Is it correct for simplicity?

Thanks

Dave

Yes, this is correct if you are ok being taxed twice on the excess contribution amount.

Hello @DanaB27 ,

 Thank your for your detailed explanation to the original thread. I have similar situation, however I have just filed the Return of excess contribution with Fidelity. I’m expecting them to process it shortly before April 15. So I would like to understand if the procedure is same as above ie everything can be resolved with my 2022 tax filing or will anything need to be reported in 2023 return further?  (I am just trying understand if the 1099-R issued will be applicable to 2022 or 2023 return?) Thanks and appreciate your response if I may have repeated any question.

You will not have to report this on your 2023 tax return since you have opted to report it on your current return.  Keep all of your paperwork with your tax documents.

You have two options for how to resolve your excess 401(K) deferrals:

1. Wait until next year when you receive the 2023 Form 1099-R and amend your 2022 tax return
2. Report it now on your 2022 return and ignore the 2023 1099-R when it comes next year
   • If your 2023 Form 1099-R has an amount in box 4, Federal tax withholding and/or box 14 State withholding, then you must enter it on your 2023 tax return. The 2023 Code P won’t affect your return, but the withholdings will be applied to 2023.

Click here for additional information of excess contributions.
 

Thanks for your reply. I have added the "Misc. Income" section (as per this thread) for the distribution I just received from Fidelity. However TurboTax still complains about the excess 401k contribution when I click "Done with Income" .

Where (in the final forms) or any other section can I check to see this is reconciled with the "Misc. Income?" 

Thank you.

You can ignore the warning since you took corrective actions and you don't get a penalty calculated for an excess deferral (but if you don't take it out by April 15th then you are taxed twice). 

You will see the excess deferral added on line 1h of Form 1040.

If you receive the distribution of the excess deferral and earnings by April 15th then please note for the Tax Year 2023 tax filing due April 15, 2024: 

Two 2023 Forms 1099-R will be issued reporting the excess.

• Form 1099-R with code P in box 7 can be ignored since you reported the excess as described above in 2022. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2023.

@vijayar 

Hi @DanaB27 Thank you. I can see the excess amount listed on line 1h of the 1040 Preview. How can I check the forms to see there is no "excess" as far as the 401k is concerned? ie - how can I reconcile this amount on Line 1h with my 401k contribution (on my tax form) to see there is no excess? Thank you

You have the entry on your W-2 box 12 for your deferrals to your 401(k) and the entry on line 1h and as long as the amount in box 12 minus the entry on line 1h is not more than $20,500 then you don't have an excess deferral.

@vijayar 

Dear experts,

As I asked earlier, I over contributed 401K by about ~8K in 2022 due to job changes and decided to take a simpler way by entering this 8K in misc. income on 1040 (and let it tax me again when withdraw in the future).

My question is is turbotax will NOT have option to enter this "automatically" on 1040 for me, correct? I saw it points out that I over contributed and explains the option I have to resolve it.

I will have to "manually" go to 1040 form and enter 8K in misc. line, correct? where is it on 1040?

Many thanks

Dave

Thanks for the information, I am doing it now.

In the step 3, how to report the excessive 401K contribution amount? which form and which line to report this? I don't have a separate 1099-R form, just two W-2 forms from two employers, how should I file in this case?

thanks

Dave

No, TurboTax will not automatically add the excess deferral to your wages you will follow the steps below to enter the excess deferral (you don't need to wait for Form 1099-R). The excess deferral will be reported on line 1h of Form 1040.

To enter the excess deferral in TurboTax:

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 "2022 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 2023 tax filing due April 15, 2024: 

2023 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 2022. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2023.

Please enter your W-2 as shown on the form. You can ignore the warning since you took corrective actions and you don't get a penalty calculated on excess deferrals.

1. Click on "Search" on the top right and type “W-2” 
2. Click on “Jump to W-2”

@davoti2 

Hi @DanaB27 

Thanks for your reply. I have a follow up question based on the Distribution Statement I just received from Fidelity.

Requested amount $3730.xx

Distr. amount (from Fidelity) $3715.xx

1. Per Fidelity- Since the investment lost value, they returned a smaller amount than I requested

   . (I understand this part)
2. Does this mean I still have an excess in my 2022 Contribution?? They said they did this as per IRS rules.
3.  So the main question I have now-

   What should I enter for the "Misc. Income" section in TurboTax

   ?
   1. The original amount I requested ($3730.xx)  OR
   2. The actual amount distributed ($3715.xx) (Does this imply I still have an excess for 2022??)

Kindly advise. Thank you.

No, you don’t have an excess contribution, you removed the excess contribution with a loss. Fidelity followed the rules correctly.

You will enter the full amount of the excess contribution (the original amount of $3,730) on your 2022 tax return.

The loss will have to be reported on your 2023 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 (-$15)

“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 8z, and identify it as Loss on Excess Deferral Distribution”. (Pub 525)

@vijayar

Thanks a lot for clarification @DanaB27 Are these instructions applicable to the desktop version also? If so could you please share instructions for the same.

Yes, please follow the instructions provided for software/desktop version, very similar to online and what DanaB was writing about. Here's DanaBs instructions for desktop not online.

1. Click Personal
2. Personal Income
3. I'll Choose what I work on
4. Less Common Income
5. Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
6. Select "Other reportable income" and click "Start"
7. Answer "Yes" to "Any Other Taxable Income?"
8. Enter "Loss on Excess Deferral Distribution” and enter the loss as a negative number (-$15)

@vijayar 

Thanks @MichaelG81 but I was asking how to report the ROE deferral income (not the gain/loss) associated with same. 

Please follow these steps to add the excess deferral to your wages in TurboTax Desktop on your 2022 tax return:

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down "Less common income" and click "Start" next to "Miscellaneous Income, 1099-A, 1099-C"
4. Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
5. On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
6. Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
7. On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
8. On the "Any Other Earned Income" screen enter "2022 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

@vijayar 

Hello @DanaB27 

I have one further follow up question, I have just received a letter from Fidelity. I would like to understand the below highlighted section: could you please explain why they are referring to "0.00 of Roth" contributions and where the same should be reported? (I have already filed my return with the steps you have provided earlier)

Please be advised that the full amount of the excess deferral, $0.00, which represents a return of Roth contributions, must be included in your taxable income for 2022"

Dear Sir or Madam:

It has been determined that you had made an excess deferral of $37xx.xx into the above-referenced retirement plan in 2022. Under Internal Revenue Service (IRS) regulations, this excess deferral must be returned to you along with the earnings on this amount.

Since the investment return on your account for 2022 was negative, the amount being returned to you is the excess deferral minus the loss attributable to the excess. The check recently sent to you in the amount of $3xxx.xx represents this corrective distribution less any applicable withholding, and is not eligible for rollover to an IRA or employer-sponsored retirement plan. In January of 2024, Fidelity will issue an IRS Tax Form 

(1099-R) reflecting this distribution.

Please be advised that the full amount of the excess deferral, $0.00, which represents a return of Roth contributions, must be included in your taxable income for 2022. If you have already filed your 2022 Federal and State (if applicable) income tax returns, it may be necessary for you to file an amended return. In addition, please note that in January of 2024 you will receive a 2023 IRS Tax Form (1099-R) reflecting the distribution of this excess deferral. This form, which will be filed with the IRS, will indicate that this distribution was taxable to you in 2022 (excluding any Roth excess contributions). The loss attributable to your excess deferral, $xx.xx, may be reported as a negative amount on the "Other Income" line of your 2023 Federal and State (if applicable) income tax returns. Given the complex nature of this corrective distribution, you may wish to discuss the tax implications with a qualified tax advisor.

Should you have any questions concerning this distribution, please contact your Plan Administrator.

Sincerely,

Fidelity Investments

To confirm, this wasn't an excess to a regular 401(k) but instead a Roth 401(k)? Contributions to a Roth 401(k) have been already taxed and therefore you would not have to add the excess deferral to your wages.

"If the distribution was for a 2022 excess deferral to a designated Roth account, your Form 2023 Form 1099-R should have codes B and P in box 7. Don’t add this amount to your wages on your 2022 return" (Pub 525).

If you had only a Roth 401(k) then would have to amend your 2022 return to remove the excess deferral after your return has been processed. I'm sorry for the miscommunication. 

@vijayar 

Hi @DanaB27  thanks for the reply- this was regular pre-tax 401k so I believe what you said earlier still applies. However my question was re: the highlighted section “why  would they indicate “$0.00” for the Roth”? The rest of the letter agrees with whatever u have mentioned earlier. 

I assume that they just use a standard letter and in the sentence indicate how much of the excess deferral was a Roth 401(k) contribution ($0 in your case). 

@vijayar