Overcontribution to solo 401k

[apquiroz]

As a sole proprietor, I recently opened a Self-Employed 401k plan with Fidelity. For most of 2023, I was a W-2 employee and contributed $18720 to my employer-sponsored 401k, and then for the remainder of the year earned self-employment income. I accidentally miscalculated and over contributed $90 to my self-employed 401k plan. I am now $90 over the 2023 401k contribution limit of $22500.

If I understand correctly, I need to withdraw the excess contribution of $90 from my Solo 401k, but when I called Fidelity, they told me they couldn’t help me calculate the earnings/losses. I only just opened the account last week (March 2024) and contributed the money. I received $2.67 in dividends already, but since I only just contributed that last week, does that even count as earnings for 2023? I have not yet filed my 2023 taxes but need to have this resolved before I do. Does anyone have advice for how to deal with the excess contribution?

Next is how to file this in my taxes. Do I deduct out the $90 from the Solo 401k employee contribution? Do I have to report that excess $90 anywhere?

[DavidD66]

You need to go ahead and remove the excess contribution before you file your return, otherwise you will have to file an amended return.  If the excess is only $90, any related investment income is likely to be negligible (less than $1) and not require reporting.  You can remove the $90 and assume there are no earnings associated with it, or you can file an extension and wait on Fidelity to calculate the earnings, if any, and remove both before filing.  If you remove the $90 before you file, you won't have to report anything.  It will be as if you never made the contribution. 

[apquiroz]

Thanks @DavidD66 ! Your answer makes sense, but in reading other forums, I had read that I might need to report the withdrawal on a 1099-R. Also, since this is an employEE contribution, is there any requirement to file a Form 5330?

[SusanY1]

Fidelity may issue a 1099-R for the withdrawal, which will be reported on your 2024 tax return (and be of no consequence assuming that you request a "return of excess contribution" rather than a standard withdrawal).  

Form 5330 relates to excise taxes which you are not subject to in this instance, so you do not need to file that form.