How to declare 401K excess contribution amount withdrawal made before April filing date?

[t_j_2025]

I realized an excess 401K contribution was made in 2024 and withdrew the money in March 2025. How ever, the 1099-R will be issued in 2026. What are the steps for me to add this in my 2024 tax filing and avoid any penalty? Does turbotax assess the taxes for the withdrawal amount? Pls advise.

[DanaB27]

You must include the excess deferral in your wages in the year the excess deferral happened. Please follow the steps below:

1. Login to your TurboTax Account 
2. Click "Wages & Income" (under Federal) on the left side of your screen
3. Scroll  down to "Less Common Income" and click "Show More"
4. Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
5. Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
6. On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
7. Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
8. On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
9. On the "Any Other Earned Income" screen enter "2024 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

If you receive the distribution of the excess deferral and earnings by April 15th then please note for the Tax Year 2025 tax filing due April 15, 2026. You will receive two 2025 Forms 1099-R reporting the excess:

• Form 1099-R with Code P in box 7 can be ignored if you reported the excess as described above in 2024. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2025.

No, there isn't a 10% early withdrawal penalty with this withdrawals.

[t_j_2025]

Hi DanaB27,

Thank you for the detailed steps on how to report the 401(k) excess contribution withdrawal as Other Earned Income in TurboTax. I really appreciate your guidance.

I have a few additional questions regarding this topic:

1. It appears that TurboTax has applied a 10% tax to this amount. I believe this represents the tax on the excess contribution rather than a penalty. Is my assumption correct?

2. The withdrawn excess contribution, along with my spouse’s IRA amount, has been transferred into a new Roth IRA under my spouse’s name. Should this be reported in the 2024 or 2025 tax return? Additionally, should I expect to receive a Form 1099-R for this transaction?

I would appreciate your advice on these points. Thanks 

[DanaB27]

Yes, the excess deferral is added to you taxable income on line 1h of Form 1040 and will be taxed according to your tax bracket. You shouldn't see any penalty when you follow the steps above.

To clarify, you made a Roth IRA contribution with the funds received from the excess deferral? If the contribution was made for 2024 then you will enter it in the IRA contribution interview under Deductions & Credits.

You also converted funds from a Traditional IRA to Roth IRA? If this happened in 2025 then you will get a 2025 Form 1099-R and report this next year on your 2025 return.  If your spouse made nonductile contributions to the Traditional IRA for 2024 then please see How do I enter a backdoor Roth IRA conversion? for additional information.

[t_j_2025]

Yes, our advisor suggested we can use the excess deferral to create a Roth IRA account for my spouse. This was made in 2025. Is there anything I need to do this year or can I wait for 1099-R that will be generated next year? 

[DaveF1006]

You can report it this year on a 1099R form You won't be taxed on this except for any earnings may have occurred.  This is how to report. 

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2024?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On "Is the IRA/SEP/SIMPLE box on this 1099-R checked?" screen answer "No, the box is blank"?
11. On the "Which year on Form 1099-R" screen say that this is a 2025 Form 1099-R.
12. Click "Continue" after all 1099-R are entered and you answered all the questions.