For the fiscal year 2019 I just found that I have ended up contributing a slightly higher pre-tax dollar amount than the allowed limit of $19,000. This happened because I switched job in middle of year and ended up doing a little miscalculation to maximize the contribution. I stopped contributing to the older 401(K) and started contributing to the new 401(K).
What is the best course of action to fix it now? Should I withdraw the extra fund from my current employer sponsored 401(K)? I am assuming I would have to pay tax on that withdrawal and would receive a 1099-R from the 401(K) in my tax preparation.
Need some guidance. Thanks
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Yes, you need to withdraw the excess Prior to April 15th, 2020.
You will need to make the following entries into TurboTax for 2019 (the year you made the Excess Contributions)
You should report the excess contributions to your 401(K) by following these steps:
Here is an IRS link with more details: Excess Deferrals to 401K
Thanks for such a prompt attention to my question and sharing the IRS link too.
Can you please also answer the following:
Yes you can withdraw the excess deferrals and Yes you need to withdraw also any earnings on the excess amount contributed.
No your employer does not need to issue you a new W-2. Since the excess contribution is going to be reported on your return as taxable income.
Report the excess deferral and earnings as a substitute 1099-R with a code 8 for Box 7
You will receive a 1099-R for 2020 showing the distribution, but this information does not need to be included with your 2020 tax since you have included it with your 2019 return.
Thanks @DianeC958 for responding to all my questions. I do still have further clarification.
Substitute Form 1099-R
Based on your explanation it seems I will receive 1099-R for this withdrawal not likely until next year so I will have to go for substitute Form to file the tax return this year. I do notice in TurboTax it mentions this in the Learn More section for substitute 1099-R.
You'll be required to:
- describe your communications with the plan administrator in your attempt to get the form, and
- attest to the IRS that you were unable to obtain it.
Does TurboTax will guide through completing the above steps? It seems I will have to fill Form 4852.
The first response to my query which was answered by an Expert @KarenM90
That seems to take a completely different approach to report this income.
Select "Other income not already reported on a Form W-2 or Form 1099" and click on Start
I could navigate to the section as per the direction and put in description “2019 Excess 401K Deferrals”.
I don’t know if these two different approaches to report this extra income eventually leads to the same documents or not.
Which approach should I be taking – Substitute Form 1099-R or Other income not already reported on Form W-2 or Form 1099?
The excess amount contributed to 401-K is relatively small. I don’t think it should matter from which 401-K I withdraw this extra contribution since I had two. Please confirm.
Experts @DianeC958 @KarenM90
Can you please answer the pending questions that I asked in my previous thread? Both of you responded back with a slightly different approach to handle it in Turbo Tax. I am thinking it shouldn’t matter which approach I take but need a confirmation from your end.
And what is the form used to show this extra income not reported on W-2 ?
Since the income is from a retirement plan the best option is to report is as a substitute 1099-R.
There is not a form to show extra income not reported on W-2.
As for which 401k plan to withdraw the excess from it should be taken from the one where the excess money was put in.
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