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!!
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.
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?
@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?
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
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?
@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?
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.
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?
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.
How do I indicate that I will have returned the excess contribution before 04/15? Thank you.
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:
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
Will adding it as excess income make it taxable? This was a Roth 401k contribution so it was already taxed. Thank you.
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.
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.
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!
@ThomasS2020 wrote:
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!
If this was a 401(k) Roth then that is after-tax money which was never deducted so there is nothing to report for the return. However, it that excess generated any earnings while in the account then that is taxable income for the year returned - 2020. You will get a 1099-R next year that reports that on your 2020 tax return.
Hi - thank you for your response. That all makes sense to me - my only remaining concern is how does the IRS know that I did not actually over-contribute, since all they will see are the number(s) in the W2s, which add up to more than $19,000? Will this not get flagged?
No. The 401(k) plan trustee reports that to the IRS with the 1099-R.
IRS Pub 525 page 10 says NOT to include the excess. for a Designated Roth.
https://www.irs.gov/pub/irs-pdf/p525.pdf
I made an excess contribution to a ROTH 401k in 2019. It was discovered late and the plan sponsor could not send me a corrective distribution (return of my excess contribution) or any earnings on the excess before the tax filing deadline of April 15, 2020. In June 2020, I received two 1099-Rs...one with a code of 7 in Box 7 for the 2019 excess contribution ($2666.66) and one with a code of 8 in Box 7 for the earnings ($1.74). I'm working on my 2020 taxes now and understand from this thread that the earnings of $1.74 need to be reported on my 2020 tax return. What do I do with the other 1099-R? Since this is a ROTH 401k, do I need to report/file anything for the 1099-R showing the return of my excess contribution with code P in Box 7 and with $2666.66 in Box 1 and Box 2a? It doesn't seem right to ignore the 1099-R with the code P, but at the same time, I don't see the need to report this distribution anywhere since this is a Roth 401k. Are there different rules since I couldn't get the excess contribution returned before the filing deadline of April 15th?
Any advice is much appreciated!
@RussWill wrote:
I made an excess contribution to a ROTH 401k in 2019. It was discovered late and the plan sponsor could not send me a corrective distribution (return of my excess contribution) or any earnings on the excess before the tax filing deadline of April 15, 2020. In June 2020, I received two 1099-Rs...one with a code of 7 in Box 7 for the 2019 excess contribution ($2666.66) and one with a code of 8 in Box 7 for the earnings ($1.74). I'm working on my 2020 taxes now and understand from this thread that the earnings of $1.74 need to be reported on my 2020 tax return. What do I do with the other 1099-R? Since this is a ROTH 401k, do I need to report/file anything for the 1099-R showing the return of my excess contribution with code P in Box 7 and with $2666.66 in Box 1 and Box 2a? It doesn't seem right to ignore the 1099-R with the code P, but at the same time, I don't see the need to report this distribution anywhere since this is a Roth 401k. Are there different rules since I couldn't get the excess contribution returned before the filing deadline of April 15th?
Any advice is much appreciated!
First you said a code 7 in box 7 and then a code P.
A code P for a designated Roth should have the returned excess in box 1 and a zero in box 2a. Since a designated Roth did not reduce your 2019 taxable income, it does not get entered anywhere - keep it for your records.
Thanks for the prompt reply macuser_22! My apologies for the earlier typo.
To clarify, I received two 1099-Rs. One is for the return of the excess contributions to a Roth 401k of $2666.66 and has code P in Box 7 with $2666.66 in both Box 1 and Box 2a. The 2nd 1099-R is for the earnings on the excess contribution of $1.74 and has code 8 in Box 7 with $1.74 in both Box 1 and Box 2a.
Based on the specifics of your wording, it appears my plan sponsor (VOYA) hasn't properly identified my 401k contributions as being "designated Roth". If so, it appears the amount in Box 2a of the 1099-R with a code P for the excess contribution would be zero, correct?
If so, is this something I need the plan sponsor to correct and resend a revised 1099-R showing zero in Box 2a? Or...since there's nothing to report/file for a return of excess contribution to a Roth 401K, can I ignore the fact there's an amount in Box 2a? Are there any future ramifications for this between me and the IRS in the future when I start making tax free withdrawals from this Roth 401k?
Thanks in advance for any advice you can provide.
Thanks for the prompt reply macuser_22! My apologies for the earlier typo.
To clarify, I received two 1099-Rs. One is for the return of the excess contributions to a Roth 401k of $2666.66 and has code P in Box 7 with $2666.66 in both Box 1 and Box 2a. The 2nd 1099-R is for the earnings on the excess contribution of $1.74 and has code 8 in Box 7 with $1.74 in both Box 1 and Box 2a.
Based on the specifics of your wording, it appears my plan sponsor (VOYA) hasn't properly identified my 401k contributions as being "designated Roth". If so, it appears the amount in Box 2a of the 1099-R with a code P for the excess contribution would be zero, correct?
If so, is this something I need the plan sponsor to correct and resend a revised 1099-R showing zero in Box 2a? Or...since there's nothing to report/file for a return of excess contribution to a Roth 401K, can I ignore the fact there's an amount in Box 2a? Are there any future ramifications for this between me and the IRS in the future when I start making tax free withdrawals from this Roth 401k? In other words, will the amount in Box 2a corrupt my plan in the eyes of the IRS and restrict future tax free withdrawals?
Thanks in advance for any advice you can provide.
@RussWill wrote:
Thanks for the prompt reply macuser_22! My apologies for the earlier typo.
To clarify, I received two 1099-Rs. One is for the return of the excess contributions to a Roth 401k of $2666.66 and has code P in Box 7 with $2666.66 in both Box 1 and Box 2a. The 2nd 1099-R is for the earnings on the excess contribution of $1.74 and has code 8 in Box 7 with $1.74 in both Box 1 and Box 2a.
Based on the specifics of your wording, it appears my plan sponsor (VOYA) hasn't properly identified my 401k contributions as being "designated Roth". If so, it appears the amount in Box 2a of the 1099-R with a code P for the excess contribution would be zero, correct?
If so, is this something I need the plan sponsor to correct and resend a revised 1099-R showing zero in Box 2a? Or...since there's nothing to report/file for a return of excess contribution to a Roth 401K, can I ignore the fact there's an amount in Box 2a? Are there any future ramifications for this between me and the IRS in the future when I start making tax free withdrawals from this Roth 401k? In other words, will the amount in Box 2a corrupt my plan in the eyes of the IRS and restrict future tax free withdrawals?
Thanks in advance for any advice you can provide.
Are you sure that this was a 401(k) Roth (Designated Roth) and not a Traditional 401(k) plan? Your 1099-R's appear correct for a non-designated Roth. They are reporting an ordinary 401(k) excess in which case you enter the code P 1099-R in an amended 2019 tax return and the box 2a amount will be added to your 2019 wages.
Check your 2019 W-2 box 12 - if code D then it was a ordinary 401(k) contribution. 401(k) Roth (designated Roth) will have a code AA in box 12.
Thanks again for the prompt response macuser_22! It is truly appreciated.
Yes - I'm positive all of the 401k contributions were made to a designated Roth as evidenced by code AA in box 12 of both my 2019 and 2020 W-2s.
I am a fairly new member to this 401k plan as I changed employers in Nov 2019. Is the plan sponsor indicating a taxable amount in Box 2a because this corrective distribution is somehow being deemed an early withdrawal because it happened in the first year of me being part of this plan? Also, I am not over 59 1/2...does that have anything to do with it? Even so, it seems code B should be in Box 7 somewhere acknowledging this 1099-R is associated with a Designated Roth, right? But more to the point, what else can make this corrective distribution from a Roth 401k taxable (Box 2a)? It seems my plan sponsor has made a mistake, or I am being taxed for correcting an excess contribution that occurred in Year 1 of my participation in a new Roth 401k plan. The latter doesn't sound right since changing employers is one of the main reasons these excess contributions happen in the first place.
Like you, I'd be hesitate to think a large plan sponsor would make a mistake. However, I'm not convinced I should be taxed on a withdrawal of a contribution from a Roth 401k plan...even an excess contribution. I do expect to be taxed on the earnings from that withdrawal because it's been within 5 years and I'm under 59.5.
I'm hopeful this additional info will assist. Thanks again for your help.
@RussWill wrote:
Thanks again for the prompt response macuser_22! It is truly appreciated.
Yes - I'm positive all of the 401k contributions were made to a designated Roth as evidenced by code AA in box 12 of both my 2019 and 2020 W-2s.
I am a fairly new member to this 401k plan as I changed employers in Nov 2019. Is the plan sponsor indicating a taxable amount in Box 2a because this corrective distribution is somehow being deemed an early withdrawal because it happened in the first year of me being part of this plan? Also, I am not over 59 1/2...does that have anything to do with it? Even so, it seems code B should be in Box 7 somewhere acknowledging this 1099-R is associated with a Designated Roth, right? But more to the point, what else can make this corrective distribution from a Roth 401k taxable (Box 2a)? It seems my plan sponsor has made a mistake, or I am being taxed for correcting an excess contribution that occurred in Year 1 of my participation in a new Roth 401k plan. The latter doesn't sound right since changing employers is one of the main reasons these excess contributions happen in the first place.
Like you, I'd be hesitate to think a large plan sponsor would make a mistake. However, I'm not convinced I should be taxed on a withdrawal of a contribution from a Roth 401k plan...even an excess contribution. I do expect to be taxed on the earnings from that withdrawal because it's been within 5 years and I'm under 59.5.
I'm hopeful this additional info will assist. Thanks again for your help.
Then the IRS will surely question why you did not report and pay the tax on the 1099-R for 2019. You should attempt to get a corrected 1099-R with the returned amount in box 1 , zero in box 2a and code PB in box 7.
The code 8 is correct regardless of the type of account since it only reports the earnings taxable in the year returned so the type of account is irrelevant.