topic Re: 401k Excess Contribution Late Withdrawal in Retirement tax questions

401k Excess Contribution Late Withdrawal

ka2626_b — Mon, 23 Feb 2026 12:30:41 GMT

Due to having multiple employers in 2022, I exceeded my 401k contribution limit. I requested a refund of the excess deferrals, but because the plan provider is backlogged on requests they may not process my refund in time for 2022 tax filing.

Per these threads (401k overcontribution and What if I have a 401(k) excess deferral?) I understand the process assuming the refund is issued on time, but what about if the refund ISN'T issued on time? Is it still the same process of adjusting the box 12 amount to meet the contribution limit and adding the excess under Miscellaneous income? Is the only difference that for 2023 tax filing, I add the excess again as well as any earnings (presumably based on the 1099-R form issued for the refund) to be taxed a second time as a penalty for the late withdrawal?

Re: 401k Excess Contribution Late Withdrawal

DanaB27 — Wed, 15 Feb 2023 21:44:41 GMT

First, you will have to add the excess deferral to your wages on your 2022 return no matter if you get it before April 15th or after. Please, review the steps below (you don't need to change your W-2 unless you receive a corrected one):

Login to your TurboTax Account
Click "Federal" from the left side of your screen
Scroll down to "Less Common Income" and click "Show More"
Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
On the "Any Other Earned Income" screen enter "2022 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

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 (with the steps above) and again when you receive it as a distribution (enter Form 1099-R on your 2023 return). You can't include the excess amount in the cost of the contract even though you included it in your income.

If you receive the distribution of the excess deferral and earnings before April 15th, 2023, 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.

Re: 401k Excess Contribution Late Withdrawal

ka2626_b — Wed, 15 Feb 2023 14:44:36 GMT

Thank you for the clarification on how the double tax works.

Just one more thing - this thread (401k overcontribution) indicates that when the excess deferral is returned on time, the W-2 Box 12 Code D amount should be corrected to show there is no excess contribution. However, in the case that I don't have the excess deferral returned by April 15th, do I still make this adjustment or should I leave the amount as is? Will this flag an error when I'm doing the filing?

Re: 401k Excess Contribution Late Withdrawal

DianeW777 — Wed, 15 Feb 2023 16:42:19 GMT

No. If you do not plan to have the excess deferral removed from your plan by April 15th, then do not change your W2. However this will trigger an additional penalty for you.

In brief, excess elective deferrals not distributed from a 401(k) plan by April 15 of the calendar year following the calendar year in which they were contributed will be taxed twice and may be subject to an additional 10% tax on early distributions.
- 401(k) Fix It Guide

Re: 401k Excess Contribution Late Withdrawal

ka2626_b — Thu, 16 Feb 2023 03:22:43 GMT

So to summarize, if the excess deferral is issued to me after the deadline of April 15, 2023 but before April 15th, 2024:

1) For my 2022 filing, I add the excess deferral amount as Miscellaneous Income following the instructions that DanaB27 gave, but I DO NOT adjust the amount in box 12 code D as I did not make the corrective distribution before the deadline.

2) The excess deferral and earnings made on it will be reported once more in my 2023 filing as a 1099-R form as codes P and 8 respectively, and at that time I may also pay an additional 10% tax penalty for the early withdrawal.

Sorry for all of the questions, this is my first time encountering this situation and I just want to make sure I have all of the details straight. Thank you very much for your help!

Re: 401k Excess Contribution Late Withdrawal

DanaB27 — Thu, 16 Feb 2023 13:25:25 GMT

1) Yes, you will add the excess deferral with the steps mentioned above.

2) If you receive the distribution after April 15th, 2023 then it will be a regular early distribution and you will have to enter the received Form 1099-R on your 2023 tax return. As Tax Expert DianeW777 mentioned this distribution will be subject to the 10 % early withdrawal penalty.

If you a certain that they cannot remove the excess before April 15th, 2023, you might want to consider leaving the excess in the account until you are 59 1/2 to avoid paying the 10% early withdrawal penalty.

@ka2626_b

Re: 401k Excess Contribution Late Withdrawal

ka2626_b — Thu, 16 Feb 2023 15:26:27 GMT

Understood, thank you for the clarification! I'm not certain that the excess can't be removed on time, just unsure as I couldn't be given a specific ETA, but I'll keep an eye on the status and consider cancelling it if it doesn't seem to be making any progress.

Re: 401k Excess Contribution Late Withdrawal

ka2626_b — Wed, 22 Feb 2023 06:33:43 GMT

@DanaB27 @DianeW777

Hello, thank you again for your help previously! From the earlier replies I understand the instructions assuming the refund is not issued on time, but I wanted to clarify one detail assuming that the excess is refunded on time, as I've been getting conflicting answers:

I previously referenced a discussion about amending W2 forms that seemed to indicate that the W2 box 12 amount should be reduced if the excess deferral was returned on time. However, this thread seems to indicate that no changes should be made to the box 12 amount and that the only correction for the W2 should be the addition of the excess deferrals as miscellaneous income. Which of these statements is correct? To be clear, I will not be receiving an updated W2 statement as my retirement account is being managed by a different company from my actual employer.

Re: 401k Excess Contribution Late Withdrawal

DanaB27 — Wed, 22 Feb 2023 13:00:08 GMT

You don’t need to change your W-2 box 12 entry, only enter it as reported on your Form W-2. You can ignore the warning about the excess deferral since you corrected it by adding it as other earned income with the steps above. The warning won’t cause a penalty (this only applies to excess IRA contributions). Therefore, you can ignore it.

@ka2626_b

Re: 401k Excess Contribution Late Withdrawal

ka2626_b — Thu, 23 Feb 2023 02:41:54 GMT

Understood, thank you very much for the clarification!

Re: 401k Excess Contribution Late Withdrawal

dnlb — Tue, 04 Apr 2023 12:00:52 GMT

You mentioned leaving the excess distribution in the account - I am over 50 and would like to just leave it in there. Would you please clarify- if I do that, what do I need to change on my 2022 tax return?

Re: 401k Excess Contribution Late Withdrawal

DanaB27 — Wed, 05 Apr 2023 13:15:04 GMT

You will have to add the excess deferral for 2022 to your wages with these steps:

Login to your TurboTax Account
Click "Wages & Income" (under Federal) on the left side of your screen
Scroll down to "Less Common Income" and click "Show More"
Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
On the "Any Other Earned Income" screen enter "2022 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

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 with the steps above 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.

Please see Pub 525 for additional information.

@dnlb

Re: 401k Excess Contribution Late Withdrawal

kilter — Fri, 07 Apr 2023 00:10:25 GMT

I'm in the same situation as the original poster, and I know I will not receive the excess back in time before the deadline, perhaps at all given the restrictions of my 401k since this withdrawal is not one of allowed types of early withdrawals.

According to the official IRS website on this issue (https://www.irs.gov/retirement-plans/consequences-to-a-participant-who-makes-excess-deferrals-to-a-401k-plan ) it talks about the taxed amount if corrective distribution is made before 4/15 along with how to handle earnings on the gap period -- but not if corrective distribution is not made in time (after 4/15).

So...if I wait until 59.5 (either forced to due to plan terms or by choice), am I going to have to pay significantly more tax on the earnings over that time period since the gap period, is like, 15 years in that case, or is "gap tax" on earnings still limited to earnings during the calendar year (which, in this case, was actually a loss over the calendar year)?

I don't want some really massive tax 15 years from now. So if someone can clarify specifically -- for the case where corrective distribution of the excess is not possible -- 1) when do I pay tax; and 2) what is the the amount paid each time I have to pay taxes? For ease of example, let's say the excess was $10,000. Please advise!

@DanaB27

Re: 401k Excess Contribution Late Withdrawal

kilter — Fri, 07 Apr 2023 00:11:28 GMT

Also, I already filed my 2022 taxes, so in addition to the above question on what my tax basis will be, do I have to now file an amendment to my 2022 taxes? Do I do that now, next year, some other time?

Thanks!

@DanaB27

Re: 401k Excess Contribution Late Withdrawal

dmertz — Fri, 07 Apr 2023 00:39:10 GMT

"am I going to have to pay significantly more tax on the earnings"

When distributed, earnings in the traditional 401(k) are taxable as ordinary income whether or not they derived from excess contributions. If you have no after-tax basis in the 401(k), any distribution from the 401(k) is entirely includible in taxable income. Even though the excess contribution came from already-taxed money (due to having to report the excess contribution as miscellaneous taxable income on the tax return for the year in which the excess elective deferral was made), the excess contribution does not add to your after-tax basis in the plan.

If not already reported on your 2022 tax return, the excess contribution must be reported as miscellaneous taxable income by amending your 2022 tax return. There is no reason related to this to delay amending your 2022 tax return. You'll just want to wait until your 2022 tax return has been processed before amending.

Re: 401k Excess Contribution Late Withdrawal

kilter — Fri, 07 Apr 2023 04:37:53 GMT

Thanks @dmertz . So I amend now and pay the additional income on that excess -- even though I can't withdraw it, it seems -- and then I pay taxes on it again when I am allowed to withdraw it. That makes sense. Thanks.

"the excess contribution does not add to your after-tax basis in the plan"

Why not? I guess the part that is still catching me up is that the investment basis of that additional contribution could end up outpacing the penalty over the course of the investment, I think? So couldn't I end up "cheating" the system by being allowed to have invested more up front due to excess contributions and letting it sit there for 15 years? Especially if I wait until retirement age to withdraw? Or am I not thinking about it correctly?

Re: 401k Excess Contribution Late Withdrawal

dmertz — Fri, 07 Apr 2023 11:52:14 GMT

Why not? Because the IRS says it doesn't; the IRS says the money is subject to double taxation. If it did add to your basis you wouldn't be paying taxes twice on this money.

From Treasury Decision 8357, IRS 1991-2 C.B. 181:

If an individual defers more than the maximum for a taxable year under plans of two or more unrelated employers, generally none of the plans is disqualified due to the excess. The individual may not, however, exclude the excess deferrals from gross income. Also, unless the excess deferrals are timely corrected under section 402(g)(2), they are taxed again when distributed from the plan, since they do not increase the employee’s investment in the contract under section 72.

Re: 401k Excess Contribution Late Withdrawal

kilter — Fri, 07 Apr 2023 16:16:31 GMT

This link/context is exactly what I was looking for. Thank you!

Re: 401k Excess Contribution Late Withdrawal

kabboston — Wed, 12 Apr 2023 01:01:13 GMT

@DanaB27 thank you for all the detail you provided, BUT sorry a question. I am in the situation as the poster, changed jobs and over contributed.

I have already filed with my administrator for a refund of the excess amount, and they will be withholding taxes.

I understand your instructions, but I think this conflicts with what the Turbo tax told me when it told me I had an excess deferral. It said to report it as a 1099-R (if I was going to receive before 4/15) and in box 7 select P to indicate this is a 2023 Form 1099R. I came here because P in box 7 was talking about 2021, not 2022 and I was confused. Below is what Turbo tax had under what steps do I need to take:

1. Report the excess deferral on your 2022 return in the Income section for Retirement Plans and Social Security whether or not you received a Form 1099-R before you file your return. Enter as much information as you can. Report the excess deferral amount in boxes 1 and 2a, and use code P in box 7. Indicate that this is a 2023 Form 1099-R.

2. In 2023, you will probably receive two Forms 1099-R. One reports the excess deferral amount. The other reports the earnings on the excess deferral. Enter both of these forms in your 2023 return, and we'll only add the earnings to your 2023 income.

I think I am trusting you more than them 🙂 But any guidance would be appreciated.

Thanks

Kimberly

@DianeW777

Re: 401k Excess Contribution Late Withdrawal

LindaS5247 — Wed, 12 Apr 2023 02:36:28 GMT

If you received a 2022 401(k) excess deferral distribution in 2023, you'll receive a 2023 Form 1099-R with a distribution Code P in box 7; however, it must be included on your 2022 tax return. You have two options to do that:

Wait until next year when you receive the 2023 Form 1099-R and amend your 2022 tax return
Report it now on your 2022 return and ignore the 2023 1099-R when it comes next year
- If your 2023 Form 1099-R has an amount in box 4, Federal tax withholding and/or box 14 State withholding, then you must enter it on your 2023 tax return. The 2023 Code P won’t affect your return, but the withholdings will be applied to 2023.

Select your choice below and follow the instructions.

Amend your 2022 tax return:

Select 2022, then Amend (change) return, then Amend using TurboTax Online
On the OK, let's get a kickstart on your 2022 amended return screen, select Adding or updating a tax form then Continue
On the Which one of these forms do you need to add to your return? screen, select 1099-R then Continue
Continue through the screens and answer all the questions

Report it on your 2022 tax return before filing:

If you haven’t filed your 2022 return yet and want to report a 2022 excess 401(k) deferral that was distributed in 2023:

Sign in to TurboTax and open or continue your return
Go to Wages & Income under Federal
Under Less Common Income, select Start or Revisit next to Miscellaneous Income, 1099-A, 1099-C
Select Start next to Other income not already reported on a Form W-2 or Form 1099
Answer Yes to Did you receive any other wages?, then Continue
Continue until you get to the Any other earned income screen. Answer Yes and select Continue
On the Enter Source of Other Earned income screen, select Other and Continue
On the Any Other Earned Income screen, enter 2022 Excess 401(k) Deferrals for the description, enter the amount, and select Done

For Tax Year 2023:

Your 2023 Form 1099-R form will be issued reporting the excess 2022 401(k) deferral you received as a distribution in 2023.

You can ignore a Form 1099-R with code P in box 7 if you reported the excess as described above in 2022
But, the earnings on Form 1099-R with code 8 in box 7 should be reported in 2023

If you don't take out the excess amount by the due date, you're 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.