Roth 401k Excess Contribution

[roth401excess]

If I had an over contribution to my Roth 401k in 2019 ($1300) and removed the excess ($1300) and associated gains ($160) before April 15 2020, how would I go about reporting this to the IRS for my 2019 taxes? I did not receive a corrected W2. Would I edit box 12b in the W2 to subtract out the over contribution and report that over contributed amount ($1300) in misc income somewhere else? And I would deal with the gains in the following year's taxes correct? Thank you!!

[macuser_22]

Correct.  You should receive a 2020 1099-R with a code 8 in box 7 to report the taxable earnings on your 2020 tax return.

Because 401(k) Roth contributions are after-tax money then  when  returned it is not a taxable event - there really is no place to report money that you already paid tax on and is not income.

[vc4]

Just to clarify:

1. Do I need to manually edit w2 box 12b with updated ROTH contributions? Will it not flag IRS because of the mismatch? 

2. Why do I need to again report $1300 as misc income? Shouldn't it's already be part of W2 box 1 right? 

[macuser_22]

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@vc4 wrote:

Just to clarify:

1. Do I need to manually edit w2 box 12b with updated ROTH contributions? Will it not flag IRS because of the mismatch? 

2. Why do I need to again report $1300 as misc income? Shouldn't it's already be part of W2 box 1 right? 

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1) No.  You do not change the W-2.  The W-2 reports the contribution in box 12 that reports what happened, you cannot change what happen in the past.

2) You do not report a 401(k) Roth (Designated Roth) as misc income because Roth contributions are always after-tax money so it is not taxed again when returned and not reported anywhere as income.   Only the earnings (if any) that are returned are taxed in the year returned, not the year contributed if different years.

For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf

[roth401excess]

If the earnings ($160) were returned in 2020, but before April 15th, 2020, is that considered returned in the 2019 tax year? Would I be able to include that in my 2019 tax return or would I have to wait until 2020? Also, if I didn't receive a 1099R can I manually enter that in? If so, where would I do so?

[macuser_22]

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@roth401excess wrote:

If the earnings ($160) were returned in 2020, but before April 15th, 2020, is that considered returned in the 2019 tax year? Would I be able to include that in my 2019 tax return or would I have to wait until 2020? Also, if I didn't receive a 1099R can I manually enter that in? If so, where would I do so?

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If returned anytime in 2020 it goes on your 2020 tax return next year. You should receive the 1099-R by Jan 31, 2021.   If it was a 401(k) Roth (Designated Roth) then there is nothing to enter in 2019.

[user314]

I'm in the same boat as OP.  I contributed too much to my Roth 401k in 2019 and now need to withdraw my over-contribution.  I understand I'll receive a 1099-R for any gain on that over contribution which will be taxable on my 2020 tax return.  Is there anything I need to do on my 2019 tax return as a result of this over contribution.  TurboTax said I should enter a 1099-R for 2019 showing me withdrawing the over contribution.  Is that necessary?

[DaveF1006]

Do not enter a 1099R for 2019. This will cause unneeded heartache for you next year when you receive the 1099R.  This year, all you need to do is indicate that you have/or will have returned the excess contribution before 04/15. Next year you will receive a 1099R with code P indicating you returned your contribution. The only taxable portion on the 1099R will be for interest earned on the earnings of the distribution.

[user314]

How do I indicate that I will have returned the excess contribution before 04/15?  Thank you.

[DavidD66]

If you had an excess deferral to a 401(k) in 2019, and the excess was distributed to you in 2020 you must include the excess deferral in your 2019 income (the year of the deferral).  Since the excess was removed before April 15, you do not need to report the income again in 2017.  If you receive it later, you must include it in income in both the year of the deferral and the year you receive it.

You should receive a Form 1099-­R for the year in which the excess deferral is distributed to you. If the distribution was for a 2016 excess deferral, your Form 1099­-R should have the code 8 in box 7. Add the excess deferral amount to your wages on your 2019 tax return.

To add the excess deferral to your wages in TurboTax while logged in and working on your return:

• Click on Search
• Type “excess salary deferrals“ in the Search Window
• Click on "Jump to excess salary deferrals"
• Answer Yes to "Did you receive any other wages? and click Continue
• On the Wages Earned as a Household Employee screen, Enter nothing and Click Continue.
• On the Sick or Disability screen, Enter nothing and Click Continue.
• On the "Any Other Earned Income" screen click Yes to the question: "Did you earn any other wages?"
• Click Continue
• On the "Enter Source of Other Earned Income" screen click Other and Click Continue.
• On the Any Other Earned Income screen, enter a Description such as "2016 Excess 401K Deferrals" Enter the amount returned to you and click Done

Any income on the excess deferral taken out is taxable in the tax year in which you take it out. If you take out part of the excess deferral and the income on it, allocate the distribution proportionately between the excess deferral and the income

[user314]

Will adding it as excess income make it taxable?  This was a Roth 401k contribution so it was already taxed.  Thank you.

[DavidD66]

If it was a Roth 401(k) the excess contribution that was distributed would not need to be reported on your tax return.  Any income on the excess will be reported on a 1099-R and included on the 2020 tax return.  

[user314]

So I will not make any changes to my 2019 tax return to account for my 2019 excess contribution to my Roth 401k.

I will just make sure to get the excess contribution out of my Roth 401k before April 15 2020, and I will include any income on that excess contribution on my 2020 tax return per the 1099-R that I will receive.  Thank you.

[DavidD66]

Correct.  And you're welcome.  

[ThomasS2020]

Hi - I had a follow-up question to this based on one of the very helpful points you noted.  I find myself in the same situation - I over-contributed to Roth 401k accounts for TY2019.  The excess contribution amount was returned to me in March 2020, in advance of the April 15 (assuming no coronavirus) deadline.  I understand that that next year I will receive a 1099R, however I am unsure of what, if anything, I need to do to complete my TY2019 return.  You mentioned in your message that all that is necessary now is to indicate that the excess contribution has been returned prior to April 15th.  Would you mind explaining how to do this?  

Thanks!