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Excess 401k contribution returned before April 15, no amended W-2

I switched jobs and accidentally had a slight over contribution. I got that returned before April 15 but got no amended W-2. I recall that Turbotax automatically "fixed my excess 401k" contribution and just gave me deduction for the max for the year. I also received another check for 0.02 representing the earnings on my excess contribution. 

What do I need for my taxes next year. Since TT capped my 401k contribution automatically,I never got the deduction for the excess contribution on my taxes for 2021 but I do have a very small amount of earnings on it ($0.02) for 2022. 

2 Replies

Excess 401k contribution returned before April 15, no amended W-2

401(k) contributions aren't a deduction, they are an exclusion.  They don't count as taxable income.  Since you were over the limit, the excess was added back to your taxable income whether or not you were able to recover it from the trustee.   You would not get a corrected W-2 in this case.  (It's good that you recovered it, because if not, you would pay tax on it the money on your tax return and then pay tax again when you withdrew the funds in retirement.  By getting the excess back you only pay tax on it once, and you can now spend or invest it.) 

 

The earnings on the excess (that was returned) must also be returned to you and will be taxable on your 2022 return, plus a 10% penalty for early withdrawal.  You should expect a 1099-R next January.  But, since the excess is only 2 cents, the broker may not be required to issue the 1099-R and even if they did, the IRS rounds income to the nearest dollar, so it would go on your tax return as a zero dollar item.  So you should not expect any further taxes or penalties as a result.  But you should include the 1099-R if you get one, so the IRS records match your return. 

 

Excess 401k contribution returned before April 15, no amended W-2

Yeah, I understand the part about IRS rounding to the nearest dollar. I just don't know where would that line go on the Forms etc? Since it rounds to zero, I don't think its an issue, and TT will probably ignore it BUT I dont want the IRS to think that there was 1099R issued but not represented on my return.

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