What do I need when removing 401k over contribution?

[Anonymous]

hi! I checked the forums and didn't find a similar question that pertains to my situation, so I figured I'd ask here:

My spouse overcontributed to her 401k in 2018 due to a job change and miscalculation. We have notified her employer and they have sent a request to Fidelity to return the excess, which will come in the form of a refund check.

In order to properly process this in TT so I don't get double taxed on the 401k excess deferral, what documents do I need? Do I need an amended 2018 W2? Do I need a new 2018 1099R to pay tax in 2018 on the excess deferral and a 2019 1099R for next years filings to pay tax on the interest/earnings?

[Rachel_W]

If your spouse overcontributed to a 401(k) in 2018 and the excess will be distributed by 4/15/2019, you need to include the excess contribution to your 401(K) on line 1 of your 2018 Form 1040. (See instructions below)

• You do not need a corrected/amended W2.
• You will not need or receive a 2018 Form 1099-R because the distribution will be in 2019 (See last paragraph which explains the Form 1099-R's that you will receive for 2019 and what to do with them)

Follow these steps to report the excess 401(K) contribution on your 2018 Tax Return: 

• • Click on the "Wages & Income" Tab
  • Click on "I'll choose what I work on"
  • Scroll down to "Less Common Income"
  • 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 "Yes" to the Question "Did you receive any other wages?" 
  • Click "Continue" through the questions until you get to the section "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 Form 1099-R in 2019 with a code P in box 7 which you can ignore if the excess deferral is reported as suggested above.  However, the earnings (if any) will be reported on a separate 2019 Form 1099-R with a Code "8" in Box 7 that should be reported on your 2019 tax return.

Please comment below if you need further clarification.

[Anonymous]

thank you! So my HR said it should be delivered to me in 2 weeks, but I still see no movement in my Fidelity 401k account. If I follow the above instructions under the assumption that the excess will be removed before April 15th, but in reality it doesn't actually happen, what should I do?

Basically, I'm trying to figure out if I can file my taxes now under the assumption that the excess will be removed before April 15th, but also want a back up plan in case Fidelity is slow to move and actually takes the excess out a little after April 15th...

[Anonymous]

hi TurboTaxRachelW - I followed your instructions and put in the excess deferral into the Source of other Earned Income. However, when I do the Smart Check on the Federal part, it still points out that there is an excess 401k contribution.

Is this normal and can I ignore that if I have followed your instructions?