Excess 401k contribution between two employers

[dmertz]

When you enter a code-P Form 1099-R into 2022 TurboTax, TurboTax will present a question asking if the Form 1099-R is a 2022 form or a 2023 form.

[ThanksForTheHelp]

Ah I see. That worked, thanks so much!

[shonkho]

Hello,

I'm the same boat, but my situation is slightly different. The broker returned me not just the excess deferral plus also the incurred losses on the excess deferral amount.

- Had 2 employers in 2022

- Maxed out my pre-tax 401K with Original Employer A ($20,500 IRS Limit) for 2022.

. I also contributed $13000 pre-tax to my 2nd Employer Bs 401K in 2022.

- Total contribution over IRS limit to 401k plan - 13000$

- I left my contribution to Employer Bs 401k intact and decided to request excess deferral from Employer A's broker, Fidelity.

- Sent Fidelity W2s of both employer in Jan 2023 suggesting them to refund me a check for 13000 $

- Fidelity, after review, sent me a refund for 11000$ in March 2023. The 2000$ difference in refund was explained to me as loss incurred on the original 13000$ amount.

Q : Should i input my 401k deferred income in  "other" category in TT to reflect 13000$ or should i report it as 11000$ with losses incurred. Fidelity only sent me a check and no 1099-R. Or should i report 13000$ as deferred income for 2022 401k excess and then show 2000$ as loss in tax year 2023?

[dmertz]

A:  $13,000, the amount that was excluded from box 1 of your W-2.

[shonkho]

Thank you, appreciate the insight.

[MK1947]

I'm still not sure which set of guidance to follow for Excessive Deferrals into 401K.  We've received a check and deposited before April 15 for most of the Excess; I'm assuming the balance was a loss.

The program flags the excess deferral--whether I use the within-program guidance of entering excess deferral into Retirement Plans and Social Security and using code P in box 7 to indicate 2023 1099-R (even tho' I didn't receive one, yet) or whether I follow MinhT's Expert guidance and that of Turbo Tax elsewhere online and include the Excess Deferral amount under "Other Income" and cite 2022 Excess Deferral 401k.  

Does it matter which of the two locations I enter the Excess Deferral, as long as it is reported as 2022 income?

[DanaB27]

No, both methods will enter the excess deferral on line 1h of Form 1040.

Once you corrected the excess deferral and included it in your income on line 1h (with either the entry of a 2023 Form 1099-R code P or MinhT's Expert steps) you can ignore the warning in TurboTax. You won't get a penalty calculated for an excess deferral.

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. 

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 

Please see Pub 525 for additional information.

@MK1947 

[gangchen]

if the section 4979 that have a 10% penalty on excess deferral apply in this situation?

[dmertz · Accepted solution]

Section 4979 applies to excess employer contributions, not to excess employee elective deferrals that result from contributing to the plans of two separate employers.  The section 4979 penalty is imposed on the employer, not on the employee.

[ASBB2024]

@DanaB27 Does it matter if the excess contributions are mix of Roth and Pre-Tax? I am in a similar situation and I exceeded my contributions limit in 2024 by about $6000. In 2024, I made about $5000 of Roth contributions (I assume this portion was already taxed, correct?). Does this help at all in minimizing the taxation penalties?

Thanks

[DanaB27]

Excess contributions to a designated Roth account won't get added to your wages since they are after-tax contributions. Only pre-tax excess deferrals will have to be added to your wages on your 2024 return with the steps below:

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 "2024 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 2025 tax filing due April 15, 2026: 

2025 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 2024. 
• Form 1099-R with codes P and B in box can be ignored.
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2025.

Please see Pub 525 for additional information.

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 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.

@ASBB2024 

[ASBB2024]

@DanaB27  Thank you. To be clarify my Roth question? Let me provide numbers:  

In my first plan, I contributed, in 2024:

      Pre-Tax (traditional 401k): $14,000

      Roth                                    : $5,000

      After Tax                             : $3,000  (I believe this doesn't count at all, correct?)

and in my second plan, I contributed in 2024:

        Pre-Tax (traditional 401k): $10,000

The plan administrators refused to approve withdrawal requests. In this case, how much excess shall I report in my 2024 tax return? Is it

$1,000 (i.e., $14,000                   + 10,000 - 23,000)  [Roth contributions excluded]? or

$6,000 (i.e., $14,000 + $5,000 + 10,000 - 23,000)  [Roth contributions included]?

Thanks!

[DanaB27]

Since you cannot remove the excess by April 15th it might be easier to assume that all excess was made to the pre-tax accounts and enter $6,000 as the 2024 excess deferral. The $6,000 will be added to your wages on line 1h of Form 1040.

If you assume the excess was in the Roth 401k and cannot withdraw it by April 15th, 2025 then the excess contribution and attributable gains are the first amounts distributed from the Roth 401(k) and are taxable regardless of when they are distributed. You would have to keep track of this and remember to report it when you take the first distributions.

@ASBB2024