topic I'm sole proprietor 1099. I opened and contributed to solo 401k from that 1099 income in Dec 2024. I shouldn't have contributed since my business was at loss. in Retirement tax questions

I'm sole proprietor 1099. I opened and contributed to solo 401k from that 1099 income in Dec 2024. I shouldn't have contributed since my business was at loss.

ThoengB88 — Tue, 03 Feb 2026 16:33:07 GMT

I am requesting my brokerage to remove the excess deferral in March 2025. I haven't filed 2024 tax yet. My question is: I am reporting that 1099 income. If I also report excess contribution, won't that same income be taxed 2 times? How should I report to Turbotax and IRS? Thanks in advance!

Re: I'm sole proprietor 1099. I opened and contributed to solo 401k from that 1099 income in Dec ...

RobertB4444 — Fri, 07 Mar 2025 20:30:40 GMT

You're going to receive a 1099-R for 2025 for the contribution that is returned to you. But you should go ahead and enter it on the 2024 return now so that it is out of the way. Then, when you receive the 1099-R in 2025, you can ignore it.

For this year You're going to enter the amounts as though you had received a 1099-R. Enter the total amount that you received in box 1, the earnings in box 2a (the return of contribution that you received should have been the amount that you contributed plus any earnings it had while it was in the account. Those earnings are taxable.) and code 8 in box 7.

That's it. Then you'll be done with this for 2024 and 2025.

@ThoengB88

Re: I'm sole proprietor 1099. I opened and contributed to solo 401k from that 1099 income in Dec ...

fanfare — Fri, 07 Mar 2025 21:42:10 GMT

How do you get around the problem that TurboTax requires a Payer's TIN on a 1099-R that you enter. ?

@RobertB4444

Re: I'm sole proprietor 1099. I opened and contributed to solo 401k from that 1099 income in Dec ...

etrtca — Fri, 20 Mar 2026 14:37:05 GMT

Fidelity reported both my earnings and my excess contributions as taxable in box 2a. Isn't that incorrect?

Re: I'm sole proprietor 1099. I opened and contributed to solo 401k from that 1099 income in Dec ...

DaveF1006 — Thu, 02 Apr 2026 19:41:44 GMT

Fidelity mentioned Publication 590, but for a Solo 401(k), the relevant authority is actually IRS Publication 560 (Retirement Plans for Small Business) and Section 402(g) of the Internal Revenue Code.

IRS Publication 560, Chapter 4 (Electronic Version):

"You must include the excess deferral in your income for the year of the deferral... If you take out the excess deferral by April 15, the excess is taxed only in the year contributed. The [earnings] are taxed in the year they are distributed."

Because you made the contribution in 2025 and took the distribution in 2025 (the same year), Code 8 tells the IRS to count the whole thing as 2025 income.

Fidelity is correct.

[ Edited 04/02/2026 I 12:51 PM PST]

Re: I'm sole proprietor 1099. I opened and contributed to solo 401k from that 1099 income in Dec ...

etrtca — Tue, 31 Mar 2026 20:38:20 GMT

I contacted Fidelity as they entered code 8 in box 7 and put the entire distribution plus earnings in box 2a. The distribution and contribution were both made in 2025. Fidelity is telling me that solo 401K are treated differently and those are the rules according to publication 590.

Are excess contributions taxable (not talking about the earnings)? Fidelity is telling me I have to pay tax on the contributions since I am getting credit for it, but I am not, as in my case, I forgot to subtract my expenses and 1/2 my medicare and social security tax from my income, so turbo tax tells me that I contributed too much.

Can you cite where in publication 590 it shows that the excess contribution is not taxable in the year it was distributed?

Re: I'm sole proprietor 1099. I opened and contributed to solo 401k from that 1099 income in Dec ...

DaveF1006 — Thu, 02 Apr 2026 19:42:22 GMT

The confusion usually stems from the fact that Publication 590-A (which you mentioned) actually covers IRAs, whereas Solo 401(k)s are governed by the rules for "Qualified Plans" (found in Publication 560 and IRC Section 402(g)).

IRS Publication 560, Chapter 4 (Electronic Version):
"You must include the excess deferral in your income for the year of the deferral... If you take out the excess deferral by April 15, the excess is taxed only in the year contributed. The [earnings] are taxed in the year they are distributed."

Because you made the contribution in 2025 and took the distribution in 2025 (the same year), Code 8 tells the IRS to count the whole thing as 2025 income.

The core issue is that 401(k) contributions are "pre-tax" because they are excluded from your gross income when you first make them. If you contribute $5,000 to a Solo 401(k), you typically don't pay tax on that $5,000 in the year you earned it.

When you realize it was an "excess contribution" and take it back out, the IRS treats that money as if it were never contributed in the first place. Therefore, it must be added back to your taxable income for the year it was earned.

I know this contradicts my earlier advice but it does make sense how this was handled. Fidelity is correct.

Re: I'm sole proprietor 1099. I opened and contributed to solo 401k from that 1099 income in Dec ...

etrtca — Thu, 02 Apr 2026 23:57:55 GMT

Thanks for the clarification. Even Fidelity is mixed up since they sent me one 1099R stating just the earnings were taxable and then 2 months later sending me a new one where the excess distribution and the earnings were both marked as taxable. They also told me I would get a 5498 form later in 2026, but that isn't correct as solo 401K doesn't get a 5498.

Re: I'm sole proprietor 1099. I opened and contributed to solo 401k from that 1099 income in Dec ...

etrtca — Mon, 13 Apr 2026 19:46:38 GMT

Dave,

would you recommend entering the return of excess contribution for solo 401K as a substitute 1099R or as wages? For some reason, after I entered it as a substitute 1099R nothing is being added to the state side, so I guess I have to add that in manually, or what did I miss?

Re: I'm sole proprietor 1099. I opened and contributed to solo 401k from that 1099 income in Dec ...

ThomasM125 — Mon, 13 Apr 2026 22:19:48 GMT

You enter the distribution on a Form 1099-R entry. It is possible your state does not tax pension distributions based on your age and/or income, or for some other reason. Otherwise, you may need to delete the state return and re-enter it. There is no way to enter the pension plan distribution on the state return.

@etrtca