How to fix 401K over-contribution due to company split?

[Nat007]

Due to the company split, I have over contributed to my 401k plans for the year 2020.  I received the excess contribution from my plan admin in  Feb- 2021.  How / Where to include the excess contribution?

[DanaB27]

To report the excess 401(k) contributions and subsequent distributions, a 2020 plan excess distributed in 2021 is reported on line 1 of your 2020 Form 1040.

Please follow the steps below:

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 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 "2020 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

Please note for the Tax Year 2021 tax filing due April 15, 2022: 

2021 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 2020. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2021.

[Nat007]

Thank you! Actually, I received 4 checks, 

#1.  401K  excess

#2. Income from the 401K excess contribution

#3. 401K Roth excess

#4. Income from the 401K Roth excess contribution

Hope I can report #1 + #3 as part of 2020 tax returns? 

#2 + #4 should be reported as part of 2021 tax returns?

[DanaB27 · Accepted solution]

The 401k excess in #1 you report as mentioned above with your wages on your 2020 tax return.

The 401k Roth excess in #3  don’t add this amount to your wages. 

For #2 and #4 you will get a 1099-R 2021 with code 8 and will enter this on your 2021 tax return.

[Nat007]

I don't have any 1099R for these excess deferrals (401K, $401K Roth, 401K excess income, 401K Roth excess income).  Just for clarity, it was contributed 2020 and I received all 4 checks on the first week of February, 2021. When I talked to my plan administrator, they told me that I will receive 4 , 1099 R forms next year 2022. My question is should I wait and file all these excess and excess income next year? Is there any benefit to proactively report 401K excess for 2020 returns? 

[DanaB27]

No, you do not have to wait for the 1099-Rs you can report it now to avoid having to amend your 2020 tax return.

For the 401k excess (#1) please follow the steps below to report it:

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 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 "2020 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

The earnings will be reported on your 2021 tax return when you get the 1099-R.

If you do not feel comfortable to report it now then you can wait until you get the 1099-Rs 2021 in 2022 and then amend your 2020 tax return to include the 1099-R with code P for the 401k excess deferral.

[Nat007]

Great, I would file the 401K excess this year and don't want to amend it next year. But , what will happen to the 1099-R which I am going to receive next spring? Can I simply ignore that? Won't be audited because Empower will send it to IRS next year. Please clarify?

[DanaB27 · Accepted solution]

You can ignore the 1099-R 2021 with code P when you get it in 2022 since the code P informs the IRS that it will be reported on the previous year tax return an you reported it on your 2020 return. 

The only time a 1099-R with code P has to be entered in the current year is if taxes were withheld. 

Please keep in mind the other 1099-R 2021 that you will get will have to be included on your 2021 return.

[Nat007]

I did the exact steps last year 2021, while submitting my returns. where exactly was this 401k excess added to 1040 form? thank you.

[MaryK4]

It would be on Schedule 1 Line 8 Other Income then 1040 Line 8.  Because it was deferred compensation, the social security and Medicare tax was already included on your 2020 W2,but it was not on W2 Line 1 Income.  

@Nat007

[Nat007]

Thanks for the reply, I checked Schedule 1 line 8, but it contains only my rental income. However, in my 1040, #1 (Wages, salaries, tips etc. Attach forms(s) W-2.....DCB) it is more than sum of all my w2's, #1. But I couldn't tally with excess 401k, $6000.

[MaryK4]

You are correct it is on Line 1, but did you add just the Code P amount ($6,000) or the total you received from the 401(k)?

@Nat007

[Nat007]

Actually, I overcontributed 6K in 401K and 3K in 401K Roth. My 401K administrator told me that I won't receive the tax statements in 2021 and will receive them in Feb-2022. So I proactively reported the excess 6K in 2021 while filing my 2020 tax returns. Also, I have been told to skip the excess 3K (401k Roth) reporting which I already paid tax. thank you!