401k Excess Contribution Issue -- How to best handle the adjustment

[WendyN2]

Yes, that is correct in why your CPA had said that. He/she was correct in that. 

[kevin_ny_2003]

Thanks WendyN2. Can you please clarify if these bullet points from the IRS site are applicable to me or not ?

Timely withdrawal of excess contributions by April 15

• Excess deferrals withdrawn by April 15 of the year following the year of deferral are taxable in the calendar year deferred.
• Earnings are taxable in the year they're distributed.
• There is no 10% early distribution tax, no 20% withholding and no spousal consent requirement on amounts timely distributed."

Is that reason that CPA told me last year while filing the 2019 tax return that the earnings are taxable in the year they are distributed , in my case the $100 is the earning and was taken in 2020.

But since now I got a 1099-R for 2020 , do I need to report the $2100 again to avoid any complications? 

Thanks

[WendyN2]

Bullet One: Yes - it is strange but the easiest way is to think of the fact that the IRS gives a current year break up to April 15th for contributing to an IRA (I know we are not talking about an IRA in your case, but again it is strange), the IRS has laid out certain tax treatments for all similar types of "retirement funds" and thus theoretically uses April 15th as the beg/end of each "year" for situations like this. Make sense? So, you deferred last year, but your return applicable to last year isn't due until April 15th, so that is the "window" of how they are treating this. I know...

Bullet Two:  Depends on the type of retirement investment - remember, this is being generally stated in this section by the IRS

Bullet Three:  Correct

Lastly, YES, the 1099-R is the reflection from the IRSs' "internal reconciliation", so to speak, which is being performed by the "payor" as per the regs they must follow. Since it appears to me as though you did withdraw the $2100 based on your statements above, then that is all together different than a traditional situation where someone just leaves one job and goes to another, thus usually rolling over anything they choose. I hope that makes better sense. 

[dmertz]

The Form 1099-R seems wrong.  A corrective distribution of excess elective deferrals from an individual 401(k) should never have a code 1 in box 7.  Is the IRA/SEP/SIMPLE box marked on the Form 1099-R that you received?  If this was a distribution from an individual 401(k) as you previously stated, the IRA/SEP/SIMPLE box should not be marked.  However, the reporting on the Form 1099-R that is inconsistent with a corrective distribution from an individual 401(k) is making me question that.

I had expected that you would either receive two Forms 1099-R, one with code P and $2,000 in boxes 1 and 2a and the other with code 8 with $100 in boxes 1 and 2a, or a single code 8 Form 1099-R with $2,100 in box 1 and $100 in box 2a.  In the case of the single code 8 Form 1099-R with $2,100 in box 1 and $100 in box 2a, you would separately report the $2,000 as taxable on on your 2019 tax return by entering it into 2019 TurboTax as Miscellaneous income not already reported on a W-2 or 1099-R, which is apparently what you have already done.

Some of the information provided to you the TT CPA is irrelevant or just wrong.  The reference provided by the TT CPA applies to distributions of excess elective deferrals after the due date of your 2019 tax return, July 15, 2020 (extended from April 15, 2020 by the COVID-19 disaster declaration) under the EPCRS, which would be reported with code E in box 7 of the Form 1099-R.  That has nothing to do with your situation.

[kevin_ny_2003]

Dmertz: Thank You very much for your continued support and input. 

The form has the following on line 7

Distribution Code(s)                      1,P

IRA/SEP/SIMPLE                             ()   -- This looks like blank

The top of 1099-R form lists: Distribtions From Pensions, Annuties, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.   

The plan name is : INDIVIDUAL 401K

In the light of the above circumstances , please suggest what should I do to prevent double taxation or the best way to handle this situation. 

Thanks

Kevin

[dmertz]

The code 1 being present is improper.  I would contact the plan administrator to obtain a corrected Form 1099-R.

[kevin_ny_2003]

I am in a similar situation this year, My 401K is getting into excess that $19500 when combined with the three 401 K plans I have. If I request for removal of excess contribution form now with one of the 401K Plan admins (S corp), I am hoping I will get the 1099-R for 2021 FY since the money will be given to me by the plan admin in 2021. Is that the best way to handle this or should I go back and amend a payroll in which that 401K contribution was done? I don't want to complicate things like 2019.

Any input will be highly appreciated.

Thanks

Kevin