Similar scenario to "Excess contribution to a 401k then rolled over into an IRA" but have different questions

[tamtam]

Hello experts and users who had similar experience (@dmertz @sunandsand ) :

I have a very similar situation as covered under Excess contribution to a 401k then rolled over into an IRA  EXCEPT that my entire 401K account rolled over to another 401K plan that belongs to the company which acquired my employer.  I read thru the entire post which was super helpful and started to amend my 2023 tax return in TurboTax.  I am wondering if you can help with questions below:

1) Is it correct for the excess amount (about $6000 that is now considered ineligible to roll over to any qualified plan) to appear in "Line 5b - Pensions and annuities Taxable Amount" on Form 1040.  I initially thought the amount would be added back to Line 1a.

2) Does anyone happen to know what could/should happen to the excess amount that got roll over another 401K plan?  Will I need to pay taxes again when I withdraw the excess amount from 401k thru no fault of my own?

3) I informed my new 401K administrator about the situation who stated that they are working with the last 401K administrator to determine what to do with the excess amount  (as many employees have similar issue). Shall I go ahead to file 2024 tax return now or wait until everyone has a clearer picture of what to do with the excess amount?  My concern is that if I file 2024 tax return now, I might have to amend it later in 2025 if I receive a 1099-R from the new 401K administrator for the withdraw.

Thank you in advance for everyone's time and assistance!!

Best

Tammy

[dmertz]

In the other post, the amount in question was the result of the plan failing nondiscrimination testing.  If that's the same in this case the amount rolled over to the new 401(k) is an excess contribution that must be removed from the new 401(k) because that amount and the attributable earnings ended up being ineligible for rollover.  Your old plan should have provided you with a corrected 2023 Form 1099-R, one with code G for the portion that was eligible for rollover, a code P 2024 Form 1099-R with code P for the portion that was the excess contribution, and a 2024 Form 1099-R with code 8 if there were any attributable earnings that need to be reported on your 2024 tax return.

The code-P amount should appear on your amended 2023 Form 1040 line 1h as other earned income.

You should already have all of the Forms 1099-R that you need to complete your amended 2023 tax return and your 2024 tax return.

The corrective distribution from the new 401(k) should be nontaxable except for any investment gains that occurred in the new 401(k) on the amount that ineligible for rollover to the new 401(k).  Those gains should be taxable on your 2025 tax return, so there should be no need to amend your 2024 tax return as long as it includes the amount from the code-8 2024 Form 1099-R.

[tamtam]

Thank you so much @dmertz for your time and insight!!  Your explanation makes sense to me BUT the old plan only provided below:

1) a corrected 2023 Form 1099-R with code G for the portion that was eligible for rollover;

2) a technically new 2023 Form 1099-R with code E ('distribution under Employee Plans Compliance Resolution System') for $6000, the portion that was the excess contribution but the form says 'duplicate'.  

3) NO other 1099-R was provided😂.  

The letter  that we received from the old plan administrator also called $6000 a "corrective distribution".  So it is a relieve that you don't think the withdraw would be taxable.

Given the new 2023 Form 1099-R has code E, does it sound right to you that the amount appear in my amended 2023 Form 1040, "Line 5b - Pensions and annuities Taxable Amount" instead of Line 1h as other earned income?

Your effort and assistance are much appreciated!!

Tammy

[dmertz]

The code E 2023 Form 1099-R has the same tax consequences as I described for the code-P 2024 Form 1099-R that I has assumed, it just appears on line 5b instead of line 1h, so the $6,000 is taxable.  With no other Forms 1099-R, it seems that there are no attributable earnings to include on your 2024 tax return.  If there were any attributable earnings, I imagine that they were included on the code-E Form 1099-R to be taxed on your 2023 tax return.