Maximum contributions to 2 retirement plans (401k & 457b)

[frank401k]

My wife's government employer offers both 401k and 457b plans. In 2022, she contributed a total of $30,000 to those 2 plans. After entering W-2 info in Turbotax, application is now calling this out as exceeding the "maximum that most people under age 50 can contribute to all salary deferral retirement plans for 2022 ($20,500)". Is that correct?? My understanding was that if the employer offered both plans, then she could contribute to both and essentially double her contribution for the year. If I cannot correct this in Turbotax, does this impact the amount of tax owed/due?

[DanaB27 · Accepted solution]

You are correct, she can contribute to both plans, up to 20,500 for 2022 to each (IRS).

I cannot recreate the error. It would be helpful to have a TurboTax ".tax2022" file that is experiencing this issue. You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Online: 

1. From the left menu select Tax Tools. 
2. Then select Tools below Tax Tools. 
3. A window will pop up which says Tools Center.  
4. On this screen, select Share my file with Agent. 
5. You will see a message explaining what the diagnostic copy is. Click okay through this screen and then you will get a Token number. 
6. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

[frank401k]

Thank you very much. Token number: 1055531. I look forward to hearing back.

[DanaB27]

I reviewed your return and noticed that your spouse had two W-2s. If you add the contributions on both of her W-2s with code D—Elective deferrals to a section 401(k) in box 12 then this totals more than the allowed $20,500 for 2022.

Please be aware that your spouse can only contribute up to $20,500 across all of her 401(k), 403(b), SIMPLE plans (SIMPLE IRA and SIMPLE 401(k) plans), and SARSEP plans. In addition, she can contribute up to 20,500 to the 457(b) plan. But she contributed more than $20,500 to both of her 401(k) plans. Therefore, the message about the excess contribution is correct.

To fix this she should contact her plan administrator. If the plan permits, the excess amount will be distributed to her. The plan must pay you the amount of the excess, along with any income earned on that amount, by April 15, 2023.

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.

You will have to include the excess deferral in your 2022 tax return. Please follow these steps to report a 2022 excess 401(k) deferral:

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 "2022 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

If you receive the distribution of the excess deferral and earnings then please note for the Tax Year 2023 tax filing due April 15, 2024: 

2023 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 2022. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2023.

[SJH57]

 I am having an issue with the way TT accounts for a 457(b). However mine is that it's not accounting for an over-contribution. Is ther a fix I can try? thank you.

@DanaB27

[MarilynG1]

Does your 457b contribution show on your W-2?  If so, TurboTax will pick it up from that entry, and alert you if you have overcontributed.

A 457(b) plan’s annual contributions and other additions (excluding earnings) to a participant’s account cannot exceed the lesser of:

1. 100% of the participant's includible compensation, or
2. the elective deferral limit ($20,500 in 2022; $19,500 in 2020 and in 2021).

457(b) plans of state and local governments may allow catch-up contributions for participants who are aged 50 or older.
 

Special 457(b) catch-up contributions, if permitted by the plan, allow a participant for 3 years prior to the normal retirement age (as specified in the plan) to contribute the lesser of:
 

• the elective deferral limit ($22,500 in 2023; $20,500 in 2022; $19,500 in 2020 and in 2021).
• the basic annual limit plus the amount of the basic limit not used in prior years (only allowed if not using age 50 or over catch-up contributions)

@SJH57 

[SJH57]

@MarilynG1

thank you for your response. The story is that I contributed $26021 (I'm 65) to both an employee sponsored 401k and 457b plan ($52,042 total) in 2022. All deductions were taken pre-tax. On my  2022 W2, those amounts are listed in box 12 (a and b), using the codes "G" and "D".

I reported the overcontibution ($44 total from both plans) to my plan administrator in  Jan 2023, and I was sent checks for the principal and interest ($1.21 per account). I did not receive a 1099-R from the plan (yet). I followed the directions on TT and manually entered $45.70 into a 1099R in box 1, 2A, 3, using the code "P" for box 7 of the form. TT reports that I had an overpayment of $21.64 on my 401k account, but doesn't mention the overpayment of $21.64 on my 457b account.

My question is, did enter everything correctly into the 1099R? Why isn't TT accounting for the 457 overpayment? Thank you for your assistance.

[DanaB27]

Please be aware, that if you received the 2022 excess deferral in 2023 the earnings have to go on your 2023 tax return and the 2022 excess deferral amount on your 2022 tax return.

It might be easier to use the steps below to report this (instead of creating Form 1099-R):

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 "2022 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

If you receive the distribution of the excess deferral and earnings then please note for the Tax Year 2023 tax filing due April 15, 2024: 

2023 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 2022. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2023.

Please see Pub 525 for additional information.

It seems that TurboTax doesn't warn you about an overpayment to a 457(b) account.

@SJH57 

[SJH57]

@DanaB27 

thank you for your response. i didn't consider that the interest was paid to me in 2023 and is therefore added to my 2023. return. Since I've already created the 1099-R in TT in my 2022 return, I'd like to continue that route. From what understand, in box 1 and 2A, I enter the amount of the over contribution only. What code do i use for Box 7? And am I on the right track here doing this way, and then using the interest accrued on a 1099-R for my 2023 return? Also, after I adjusted my existing 1099-R to reflect just my over contribution, it displays a screen stating that I over-contributed $22 to my retirement plans. It is actually $44 that was over contributed ($22 from a 401k and a 457b employee retirement plan. see pic below.

I actually contributed $44 to both a 401k and 457b plans

[DanaB27]

Yes, for the created Form 1099-R you will enter the over contribution in boxes 1 and 2a. In box 7 you will use code P. For the earnings, you will get next year a Form 1099-R with code 8 that will be included on your 2023 tax return.

Yes, the warning won't go away because it is only triggered by the amount in box 12 from the W-2. But for excess deferrals, there won't be any penalties calculated so you can ignore the message for now. You got the excess and earnings distributed and reported it correctly.

@SJH57 

[SJH57]

@DanaB27 

thanks so much for the response. In reference to the over-contribution, my W2 lists both overcontributions to both my 401k and 457b (in box 12, using codes "G" and "D", each was $22), resulting in an total overcontribution of $44, however the screen pic I posted shows an overcontribution of only $22. Is this correct?

[DanaB27]

Yes, the screen should state $44 as the total overcontribution instead $22 (this has been reported to the software developers). Please ignore the screen since you took corrective actions.

[Edited 3/20/2023 | 10:40 am PST]

@SJH57 

[SJH57]

Hello,

To f/u to my "excess 401k/457b contribution" to my employer post of last year, I received the 2 1099-Rs for 2023 - they just list the total withdrawal I made (principal and interest combined). Both of the 1099-Rs have a "P" in box 7.  That was my fault because I didn't initially report to the funds that my w/d was due to an over-payment, so they processed it as a distribution. On my 2022 return, I accounted for the principal over-contribution (and not receiving any 1099-Rs) by using the "missing" 1099-R function of TT (as per the suggesting answer to my question). However, for 2023, the 1099-Rs includes the principal (and interest) that I have already accounted for on my 2022 return. So, for 2023, how do I account for the interest? (all this fuss seems ridiculous since we're only talking about under $4 of interest). I could ignore the 1099-Rs I received, and create "new" ones with the correct amounts, or I could enter the interest in the same way I accounted for the principal in 2022, or I could "correct" the amounts listed on the 1099-Rs I received from the fund?  Suggestions please. thanks so much for any assistance.

[RobertB4444]

These 1099-Rs were created to show the amounts that you already entered on your 2022 return.  So you should ignore them for 2023.  Be prepared for a potential letter from the service requesting clarification which you can provide with a copy of the 2022 return showing the distribution.

@SJH57 

[SJH57]

Hello @RobertB4444 ,

I'm wondering about the unreported interest that I received in 2023 which I have not reported and is not separated or listed separately from the principal which I reported on my 2022 return. The 1099-Rs that I received are for the total amount of the distribution, so I'm hesitant to change those so that they reflect what really happened. Any suggestions? thanks so much for your assistance, Steve