Excess Contribution and 1099-R

[rynlee]

Hello, I received this week a 1099-R for a Solo 401(k) account.  The distribution amount listed is connected to a correction I submitted to the Payer to remove an excess Elective Deferral amount from 2019.

It it appropriate to have received the 1099-R for this situation, or did I receive it in error?

[AmyC]

Since you overfunded your account, the excess was returned to you and reported on the 1099-R. That is correct.

The question then becomes, did you already report that on your prior taxes or do you need to report it this year? If you have not reported the income, you need to report it now.

[rynlee]

Thanks @AmyC .

Here's what happened: I discovered that the 2019 contribution was in excess before filing my 2019 return.  I therefore reported the corrected amount on the 2019 return and removed the excess contribution in 2020 (hence the 1099-R showing the removed amount as a gross distribution for 2020).  Do I need to take any further action, such as amending my 2019 return?

[AmyC]

You would need to include any earnings on your 2020 taxes from the excess. The IRS states:

Timely withdrawal of excess contributions by April 15

• Excess deferrals withdrawn by April 15 of the year following the year of deferral are taxable in the calendar year deferred.
• Earnings are taxable in the year they're distributed.
• There is no 10% early distribution tax, no 20% withholding and no spousal consent requirement on amounts timely distributed.

from 401(k) Plan and 401(k) Fix-it Guide show (More). Apply these to you:

• Your withdrawal was by April 15 so it was taxable in 2019 and included on that return.
• Earnings from the excess contribution will be reported and taxable in 2020.
• No 10% penalty

[rynlee]

Thanks, @AmyC  - on the 1099-R, box 2a shows $0.00 and box 7 shows distribution code P.  

What is your opinion regarding the necessity of amending the 2019 return?

[ThomasM125 · Accepted solution]

I don't think you would have to amend the 2019 return since it sounds like it was accurately stated. From what I understand, you reported the correct amount of pension contributions in 2019, so there is nothing to correct. You report interest earned in 2020, since that is when you received it.

[ILtaxpayer]

I have basically the same problem for IRA but TurboTax is telling me I need to amend my 2019 return??   In 2019 I made a $6000 nondeductible excess IRA contribution but got it returned in February 2020 before I filed my 2019 return, along with about $300 in taxable earnings on that amount.   My 2020 Form 1099-R correctly reports only the $300 as taxable (Code P in Box 7).  But TurboTax is telling me to amend my 2019 return rather than report the $300 on my 2020 return.  I tried to use TT 2019 to do an amended return but it won't allow me to enter my 2020 1099-R into the 2019 software.  It seems like a lot of trouble for $100 of tax.

[DanaB27]

Yes, you will have to amend your 2019 tax return. Please follow these steps to enter the 1099-R on your 2019 tax return:

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “1099-R”
3. Click on “Jump to 1099-R”
4. Select "I'll type it in myself" and enter your 1099-R and click "continue"
5. Continue until the "Which year on Form 1099-R" screen and say that this is a 2020 1099-R.

The IRS states:

 You must include in your gross income the interest or other income that was earned on the excess contribution. Report it on your return for the year in which the excess contribution was made.

 @ILtaxpayer  

[Edit 2/7/2021| 5:05am PST

[MOma42]

Hi, 

I have the same situation for excess IRA contributions in 2020. I have requested my 2020 unallowed contribution+earnings refund, which will be paid to me in 2021.   Can I enter this on my 2020 tax filing?

I will not yet be issued a 1099R but i will know the Gross distribution and taxable amount. 

If not then I have to wait until I receive a 1099R in 2022 for 2021 and amend 2020? 

Thanks

[AmyC]

The interest is reported the year it is received- in your case 2021. The excess contribution would be removed on your 2020 return. You would not need to amend anything.

The IRS states:

Timely withdrawal of excess contributions by April 15

• Excess deferrals withdrawn by April 15 of the year following the year of deferral are taxable in the calendar year deferred.
• Earnings are taxable in the year they're distributed.
• There is no 10% early distribution tax, no 20% withholding and no spousal consent requirement on amounts timely distributed.

from Reporting IRA and retirement plan transactions  &  Tax on Early Distributions (and exceptions)

• Your withdrawal was by April 15 so it was taxable in 2020 and included on that return.
• Earnings from the excess contribution will be reported and taxable in 2021.
• No 10% penalty

@MOma42

[Edited 2/3/2021| 11:10 am PST]

[MOma42]

Ok got that, thank you . So how do I enter the excess contribution on my 2020 filing  (current) on TT?  Do I still need to show it ? It will be essentially reversed. Thanks in advance for your input.

[AmyC]

Yes, you need to show it. Do the IRA contributions first. The program will figure out there is a problem. Then, do the IRA distribution. If you do distribution first, you get a mess and must delete.

The IRS gets a statement showing your year end value from the brokerage. You need to input the amounts that match up and make sense.to them. You have to tell the whole story in your tax return.

@MOma42

[ILtaxpayer]

@DanaB27 

Thank you for your help.  I actually have the TT Desktop version and when I do what you say (go to the form and select "I'll type it in myself") it opens a page with boxes for all of the forms on the 1099-R but there is no place to indicate that it's a 2020 Form 1099-R rather than a 2019 Form.

[macuser_22]

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@ILtaxpayer wrote:

@DanaB27 

Thank you for your help.  I actually have the TT Desktop version and when I do what you say (go to the form and select "I'll type it in myself") it opens a page with boxes for all of the forms on the 1099-R but there is no place to indicate that it's a 2020 Form 1099-R rather than a 2019 Form.

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What code is in box 7 on your 1099-R and what is in box 2a?

Is your 1099-R a 2020 1099-R or a 2019 1099-R - it says on the form.