how to handle excess deferral to retirement 401k when excess went both into traditional 401k and roth 401k

[userid94]

Spouse had 2 employers in 2025. for employer 1 she contributed 8K to traditional 401k and 13K to roth 401k. for employer 2 contributed 23.5K to traditional 401k. hence there is 22K excess deferral for 2025. we missed this and penalty free withdrawal cant happen on/before april 15. we want to keep the excess in retirement accounts and only withdraw after 60+ when there's no penalty and hopefully in a lower tax bracket. the current employer (employer 2 from 2025) says - withdrawal is not an option on their 401k plan. we are waiting for employer 1 to confirm if they will allow withdrawal or not.

i have the following qns:

(1) since the excess were only against 401k and not against IRA - I hope keeping the excess in the retirement account for many years until retirement will not incur annual excise taxes and special annual penalties if any ( payable annually or accrued till age 60 etc). Is that correct ?

(2) the 2025 excess deferral is 22K. No matter when I withdraw it, many sources say I should report 22K as additional misc income on my 2025 tax return. In our case - 13K of that 22K was a Roth 401k contribution. That 13K which went into Roth originally came from a bonus of 23K in feb 2025, which got taxed (paid 10K payroll taxes in feb 2025) and remaining 13K from that bonus eventually got directed into this Roth 401k entry. if I were to report the full 22K as additional misc income in 2025 tax return - then it seems like the 13K portion is getting TRIPLE taxed when I withdraw again at 60. I understand that I have to accept DOUBLE taxation as a punishment for missing this. in case of this 13K Roth 401k contribution - will IRS and the 401K company understand that it was Roth and maybe at withdrawal at 60 years - will it only tax the earnings on that 13k roth amount & not re-tax the 13K principal since the 13K principal has already been taxed TWICE ( once at payroll in feb2025 and once again in April 2026 while doing 2025 tax returns with excess reported as misc income) ?

(3) do I have an option to designate and attribute how I want the 401K admins to tag the excess 22K? For example - can I tell the employer 1 401k admin to make a note that the 8K of the 2025 excess should come from the traditional 401K portion only and also tell the employer 2 401k admin to make a note that the remaining 13K excess for 2025 should come from employer 2 traditional 401k portion. That way the employer 1’s 13K roth 401k can be left untouched with respect to excess and I can accept double taxation only on the 22K of the traditional 401k portions when we withdraw at 60 yrs ?

I hope someone can read and opine on this and thank you very much for advice you all provide on this forum.

[userid94]

🙏Humbly requesting the past experts on this 'excess deferral' topic to read and opine on my predicament pls. @dmertz @DanaB27 @Opus 17 

[DanaB27 · Accepted solution]

1. Correct. Unlike an IRA, where there is a 6% excise tax every year the excess remains, the 401(k) doesn't have a recurring annual penalty. The "penalty" for a 401(k) excess is simply the double taxation (paying tax on it now and paying tax on it again when you withdraw it).

2 and 3. Since you missed the April 15 deadline, the most strategic approach is to attribute the entire excess to your Traditional 401(k). You should report this by adding the excess amount to your wages on Line 1h of your Form 1040:

1. Click "Wages & Income" (under Federal) on the left side of your screen
2. Scroll down "Less common income" and click "Start" next to "Miscellaneous Income, 1099-A, 1099-C"
3. Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
4. On the "Types of wages you received" screen select “Other earned income” and click "Continue"
5. On the "Other earned income summary" screen click  “Add”
6. On the "Any other earned income" screen enter "2025 Excess 401(k) Deferrals" for the description, enter the amount and click "Continue".

Based on your figures, the total contributions were $44,500. Subtracting the 2025 IRS limit of $23,500 leaves a $21,000 excess deferral. By assigning this excess to the Traditional portion on your tax return, you ensure the Roth 401(k) remains 'clean' and qualified. This prevents the future complication of trying to separate tax-free Roth money from a taxable excess portion, allowing your Roth earnings to grow and eventually be withdrawn 100% tax-free.

[userid94]

@DanaB27 i have a couple of follow up questions:

1.

Given that I declare and pay taxes on that $21K excess deferral in my 2025 tax return, should i inform the 401K administrator of employer 1 & 2 that i have decided to not take the distribution till past 60 and do i also need to tell them that by electing to pay taxes on the full amount of 21K - I intend to keep the Roth portion intact and the 21K should be allocated to the traditional 401k portion alone?

2.

lets say at age 60, if we were to withdraw the Roth 401K from employer 1 - i assume that it will trigger the issue of a 1099-R at that time. Ideally the 1099-R box entry for the 'taxable amount' should be "$0". If the taxable amount is not zero - does that mean the 401K administrator possibly is tainting the Roth 401K with this excess deferral? in that case, will i have to dispute the 1099-R ?

thanks

[userid94]

@DanaB27 any tips or comments on my follow up question above ? thanks in advance.

[DawnC]

A normal qualified Roth 401(k) distribution after age 59½ and meeting the 5-year rule is tax-free.   Plans must separately account for Roth contributions and earnings.  A distribution attributable to excess deferrals in a designated Roth account is not a qualified distribution.  

A future Roth 401(k) 1099-R should show no taxable amount only if the distribution is actually qualified and the plan’s records support that. A nonzero taxable amount does not automatically mean the administrator tainted the Roth account. It may reflect a nonqualified distribution, earnings, or uncured excess-Roth treatment.