Penalty on excess contributions to 401(K) Account

[perrywahlin]

In August, 2021 I raised the contribution election to my Pre tax 401(K) Account. Now, while preparing my 2021 Tax Return Turbo Tax calculated a penalty for excess contributions because my contributions exceeded the $7,000 limit. I am confused because when I received the confirmation letter from the Plan Administrator regarding the change in contribution rate it included a statement "Contribution limits for pre-tax contributions is $19,500 for 2021". My contributions for 2021 are well within that limit. Is the software wrong or am I entering something wrong?

[VolvoGirl · Accepted solution]

You are probably entering it as a IRA contribution.   You do not enter 401K separately.   Delete it.   Only enter it from your W2, nowhere else.   Have you gotten your W2 yet?  Might be early.   They have until Jan 31 to send it to you.  Just wait.   

[perrywahlin]

Thanks so much for your help. You are correct. I have not received my W-2  yet but I have a record of my contributions so I entered it into Turbo Tax. I used Code D in box 12a ((Elective deferrals to a section401(k)) and checked the box identified as "Retirement plan" in box 13. This is how I have handled it in prior years without any problems but, apparently it was never over that lower limit. I will wait for the download of my W-2, but I would appreciate any comments you may have regarding how I entered the info.

[VolvoGirl]

So you only entered it in the W2 section?  7,000 is the max for IRA contributions.  Delete it wherever you entered it and wait for the actual W2.   Sure sounds like you also entered it as a IRA contribution in Deductions.  

[perrywahlin]

Yes, I entered it in the W-2 section. This is how it has been reported on my W-2 in prior years. I did not enter it in Deductions but, the Amount in Box 1 (Wages) was less than Social security wages (Box 3) and Medicare wages (Box5) by the exact amount of my 404(k) contributions.

[VolvoGirl]

Don't know why you got that error then.   But it's early and there will be many program updates to come.  All the forms and calculations aren't final yet.  Try it again later.

[perrywahlin]

Thanks so much. I will wait. I hope you are correct that there may be a "fix" for the perceived problem. I would hate to go through the process of requesting a refund of the excess contributions.

[perrywahlin]

Is there a way that I can advise Turbo Tax of the perceived problem?

[DianeW777]

Yes.  You can call TurboTax at 800-446-8848 and schedule a callback from us if no one is available immediately.  Also and possibly more conveniently you can use our online page by selecting the link below.

• Contact Us

[perrywahlin]

I am sorry I that I bothered you. I found the problem. After further checking I found that I had checked the IRA box and entered the 401(k) contributions on the "Deductions and Credits" worksheet in addition to the W-2 worksheet,  so you were correct from the outset. I guess I did not recall entering it there because I was just handling it the same as in prior years. In prior years, however, it did not generate a penalty because it was less than the IRA limit. Again, I apologize. Thanks for your EXPERT advice. 😊

[VolvoGirl]

Yikes.  If you entered it as a IRA did you get a deduction for it?   Better check your prior year returns.  You might need to amend them!

[perrywahlin]

Does not appear to be a problem. Prior year W-2's reflect the 401(k) contributions as a reduction to the amount in Box 1 when compared to Box3 and Box 5.

[VolvoGirl]

No, not on the W2.  Check your actual 1040 tax returns to see if you got a deduction for IRA contribution by mistake.  

2020 & 2019 1040 Schedule 1 line 19

2018 1040 Schedule 1 line 32

2017 1040 line 32

[perrywahlin]

I see what you are saying.  2020 was the first year that I had the 401(k) and the way I handled the contributions resulted in me getting the deduction twice, once on Line 1 of the 1040 and again on Line 10c. However, it did not affect my tax liability because my deductions on Line 12 were more than enough to cover my AGI on Line 11, even with the 401(k) contributions added back to AGI. Is there any other reason that I should file an amended return?

[VolvoGirl]

Yes you need to amend if you didn't make a separate IRA contribution and delete it.   It may affect other things.   And when you turn 72 the IRS will be expecting you to take a distribution from an IRA you don't really have.

How to amend a 2020 return

https://ttlc.intuit.com/community/amending/help/how-do-i-amend-my-return/00/27439