401k excess contribution refund is less than what I contributed due to loss. How do I file this in TurboTax?

[hchung81]

Due to the job change and automatic 401k enrollment with the new employer, there was an excess contribution to my 401k account. I called my current 401k account administrator and got a refund. But the amount they refunded is less than what I have contributed due to the loss on the account. For example, I have contributed $1000 over my 401k annual limit. But they issued a refund of $996 because of the loss. In this case, how do file my tax in TurboTax? Please advise.

[Rachel_W]

Was the excess contribution in 2018? Was it refunded in 2018 or 2019?

[hchung81]

The excess contribution was in 2018 and it was refunded in 2019.

[hchung81]

Thank you for the steps to file this, but do I need to enter $1000 or $996?

[Rachel_W]

You need to enter $1,000.

[hchung81]

Thank you very much

[Rachel_W]

You're welcome!

[Rachel_W]

Unfortunately, because it was not a qualified deferral, you won't be able to deduct the loss on this distribution.

You should report the refund of the excess contributions on Line 1 of your 2018 Tax Return by following these steps:

• Login to your TurboTax Online Account
• Click "Take Me to My Return"
• Click "Federal" from the left side of your screen
• Scroll down to "Less Common Income" and click "Show More"
• Select "Miscellaneous Income" and click Start or Update
• Select "Other income not already reported on a Form W-2 or Form 1099" and click on Start
  
• Answer the Question "Did you receive any other wages?  Yes
  
• Click "Continue" through the questions until you get to "Any Other Earned Income"
• Answer "Yes" to "Did you earn any other wages?
• Indicate "Other" as Source of Other Earned Income and click Continue
• For the description enter "2018 Excess 401K Deferrals" and click on Done

You will receive a 2019 Form 1099-R showing the refund with a code "P" in box 7 which you can ignore if the excess deferral is reported as suggested above.  

Please comment below if you need further clarification.

[divad1]

Hello. If one has an excess 401k deferral contribution, and receives it back and documented in a 1099-R, net of a loss, two questions please.

1. To confirm, the amount of that loss should be reported in Less Common Income, Misc Income, Other inc not already reported on a w2 or 1099, “Other” and then  put amt and description as “20xx excess 401k deferral - loss netted in gross distribution on 1099R”. Is this correct? If not, please elaborate. Presumably, you need to do that the actual true excess amt is reported as the combo of the gross dist amt per the 1099R (which was reduced by the loss) AND this Other Inc amt (equal to the Loss). Is this accurate? 

2. Separate from recording additional income, can and should one report the actual loss as a capital loss on Schedule D?  Isn’t it in effect, an after tax amt that was invested and lost value? Isn’t it the same as if one invested after tax funds, bought say stock or mutual funds at X then sold at a loss? Wouldn’t that be a capital loss that could be reported? Please advise and help me understand. 

Thanks very much in advance!

[divad1]

Hello. One follow up re question 2. Alternatively, could one report the loss as a negative amount in the Less Common Income, Misc Income, Other Reportable Income to reflect the actual loss? This would be a totally separate distinct line from reporting the addl excess contribution. Thanks.