Over contributing 401k in 2022

[natesht]

Hi Tax Experts,

I read the forum in 

https://ttlc.intuit.com/community/retirement/discussion/over-contributing-401k-in-2022/00/2833535

for the topic of Over contributing 401k in 2022

My wife changed her job in 2022 and we landed up contribution to the limit of 20500 for 2022. 

We are trying to get my wife company to call Fidelity to file for ROE. As we are working on that we have a tax deadline of April 15th. 

Is it okay to file the taxes (will follow the below procedure for that and add the amendment in 2022 under the Misc section) when the ROE is being processed. Say the ROE is not processed by April 15th.

1. Is there a penalty for the same.

2. And we get a 1099-R for later should I be filling an amendment in 2023 or ignore as I have already filled in 2022 but still waiting for ROE work to be done?

"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:"

Thanks

Natesh 

[LindaS5247]

If you are fixing the excess in 2022 you do not need to report anything on your 2023 tax return.  So if you get a 1099-R for 2023 you do not to add it into TurboTax but keep everything together along with all correspondence with your tax records.

If you received a 2022 401(k) excess deferral distribution in 2023, you'll receive a 2023 Form 1099-R with a distribution Code P in box 7; however, it must be included on your 2022 tax return. You have two options to do that:

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.

Amend your 2022 tax return:

Sign in to TurboTax, scroll down, and open Your tax returns & documents

1. Select 2022, then Amend (change) return, then Amend using TurboTax Online
2. On the OK, let's get a kickstart on your 2022 amended return screen, select Adding or updating a tax form then Continue
3. On the Which one of these forms do you need to add to your return? screen, select 1099-R then Continue
4. Continue through the screens and answer all the questions

Or report it on your 2022 tax return before filing:

If you haven’t filed your 2022 return yet and want to report a 2022 excess 401(k) deferral that was distributed in 2023:

1. Sign in to TurboTax and open or continue your return
2. Go to Wages & Income under Federal
3. Under Less Common Income, select Start or Revisit next to Miscellaneous Income, 1099-A, 1099-C
4. Select Start next to Other income not already reported on a Form W-2 or Form 1099
5. Answer Yes to Did you receive any other wages?, then Continue
6. Continue until you get to the Any other earned income screen. Answer Yes and select Continue
7. On the Enter Source of Other Earned income screen, select Other and Continue
8. On the Any Other Earned Income screen, enter 2022 Excess 401(k) Deferrals for the description, enter the amount, and select Done

For Tax Year 2023:

Your 2023 Form 1099-R form will be issued reporting the excess 2022 401(k) deferral you received as a distribution in 2023.

• You can ignore a Form 1099-R with code P in box 7 if you reported the excess as described above in 2022
• But, the earnings on Form 1099-R with code 8 in box 7 should be reported in 2023

If you don't take out the excess amount by the due date, you're 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.

[natesht]

Thanks Linda, that was a clear explanation. 

Just to summarize what you mentioned 

We have the ball rolling on getting ROE filed. But it is possible that we may not end up getting it done. before April 18th.
In that case, we will report the excess in turbo tax now for 2022 tax filing and will follow the details you listed (big thanks). And report the earnings on from 1099-R in 2023. We will be taxed twice since we couldn't get the amount out before the due date.

Also if we get lucky and get the ROE processed before April 18th we will report the excess in turbo tax now for 2022 tax filing but ignore the 1099-R when it comes during the filling time of 2023.

Are those right path for us?

[LindaS5247]

Yes, if you fix it now you can ignore the 2023 1099-R.

You will only get taxed only on the earnings in 2023, if you report the excess now on your 2022 tax return.

[LCAT1]

Hi Linda,

If we choose to report the excess contribution right away, do we also have to add the excess contribution returned to us in Box 1 of the W-2?

Thank you!

[DanaB27]

No, you don't change your W-2. 

You only report the excess deferral with the steps below on your 2022 tax return (this will show up on line 1h of Form 1040):

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: 

• 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 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 (with the steps above) 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.

@LCAT1