Excess deferral to 401k for 2019 taxes

[bluvii85]

Are there updated instructions for completing an excess 401K deferral for 2020? The labels/screens described here now seem to be out of date.

[macuser_22]

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@TheExit55 wrote:

@macuser_22    I was specifically asking about what I put in for the less common business situations- Self-employed Retirement (individual 401K)?  This section is located under Business Income and Expenses.

since I enter only the amount that was returned to me not including any earnings that were also returned in a different section (Personal income- miscellaneous)

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The subject of the thread was reporting excess deferrals, not the contribution that created the deferral.    You must enter the amount of contribution actually made in 2020.  2020 is over -  you cannot change what happened in 2020, you can only report it.

[arenganathan1951]

i got the cheque from my 401k account on the excess amount contributed. But not getting an amended W2 with regards to this.So usually will we get an amended w2 reflecting this or no?

[dmertz]

The employer does not issue a corrected W-2.

[arenganathan1951]

Thanks @dmertz  . So the excess amount refunded to me , should be entered as  income on line 7 of Form 1040 .

But i can use the original W2 provided, though it has 401k limit over 19500. 

And if at all any earnings i will get 1099-R for next year and nothing to be done now. Except adding the refunded amount in line 7 of 1040 , with the original W2 provided? 

[dmertz]

On a 2020 Form 1040 it's line 1, not line 7.  The numbering changed in 2018.  Use the original W-2.  The earnings will be included on your 2021 tax return.

[fe7565]

@macuser_22    

Got here after many hours of search all over the internet and I think this thread has all the answers.  But would like to confirm.  Will try to be brief:

Tax year 2019:  Changed jobs from 401k to TSP.  Maxed out already 401K.  So all contributions to TSP was excess amount. Missed TSP admin deadline for excess correction on 15 Apr 2020.  So followed TurboTax advice and 'created" Form 4852 (1099-R substitute) with detailed explanation.   

- On the form under 8.a. used Distribution code 8.   

- Added employee portion of contribution under 8a. Gross distr. and also under 8b Taxable amount

- Noted all of gains under 8.e. Capital gain 

I know now this way of doing it complicates things, but didn't know then.  So I paid the taxes on the employee-portion of excess + investment gains on all gains resulting from employee + employer + matching contribution.  

Tax year 2020:  Contributed normally to TSP with the 2019 excess (employee + employer + matching contribution) also still sitting there. Did not reach max annual contribution limit even with both combined.

  After procrastinating until now (13 Apr 2021)  I wanted to do a withdrawal to clear this off the account.  But based on what I read, since I still have a few years left before 59 1/2 age, I should just leave the excess in the TSP (since I already paid taxes on it + the gains derived from it), and just withdraw it as regular taxable TSP distribution after 59 1/2 age.

What about the employer + matching contribution portion from 2019 that I did not pay taxes on? And which was not taken back as a corrective action by the TSP admin because I missed the 15 Apr 2020 deadline? 

What tax actions (of any) do I need to do?   Thank you for your advice! 

[macuser_22]

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@fe7565 wrote:

@macuser_22    

Got here after many hours of search all over the internet and I think this thread has all the answers.  But would like to confirm.  Will try to be brief:

Tax year 2019:  Changed jobs from 401k to TSP.  Maxed out already 401K.  So all contributions to TSP was excess amount. Missed TSP admin deadline for excess correction on 15 Apr 2020.  So followed TurboTax advice and 'created" Form 4852 (1099-R substitute) with detailed explanation.   

- On the form under 8.a. used Distribution code 8.   

- Added employee portion of contribution under 8a. Gross distr. and also under 8b Taxable amount

- Noted all of gains under 8.e. Capital gain 

I know now this way of doing it complicates things, but didn't know then.  So I paid the taxes on the employee-portion of excess + investment gains on all gains resulting from employee + employer + matching contribution.  

Tax year 2020:  Contributed normally to TSP with the 2019 excess (employee + employer + matching contribution) also still sitting there. Did not reach max annual contribution limit even with both combined.

  After procrastinating until now (13 Apr 2021)  I wanted to do a withdrawal to clear this off the account.  But based on what I read, since I still have a few years left before 59 1/2 age, I should just leave the excess in the TSP (since I already paid taxes on it + the gains derived from it), and just withdraw it as regular taxable TSP distribution after 59 1/2 age.

What about the employer + matching contribution portion from 2019 that I did not pay taxes on? And which was not taken back as a corrective action by the TSP admin because I missed the 15 Apr 2020 deadline? 

What tax actions (of any) do I need to do?   Thank you for your advice! 

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If this was contributed in 2019 then it should have been reported on the 2019 tax return with a 1099-R code P that would put the excess on the 2019 1040 line 1.

Since the excess was not removed but the 2020 April 1 due date, nothing should be reported on the 2020 tax return.

[fe7565]

@macuser_22   Thank you for the fast reply.   I checked my 2019 filing for the TSP excess.    I ended up including (via Form 4852) on 1040 Line 1 only the employee contribution and capital gains.  That's because I figured that the TSP admin will take back their contributed/matched amount.  Of course that did not happen because the 15 Apr 2020 deadlines passed.  So I should have added the employer's Auto 1% + Matching contributions.

Do you think I should amend the 2019 tax return 1040 Line 1 to include the additional (about $1000) employer's Auto 1% + Matching contributions in addition to the employee contribution and capital gains already there?  Or find a way to fix it with the 2020 tax filing (which I am working on now)?

[macuser_22]

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@fe7565 wrote:

@macuser_22   Thank you for the fast reply.   I checked my 2019 filing for the TSP excess.    I ended up including (via Form 4852) on 1040 Line 1 only the employee contribution and capital gains.  That's because I figured that the TSP admin will take back their contributed/matched amount.  Of course that did not happen because the 15 Apr 2020 deadlines passed.  So I should have added the employer's Auto 1% + Matching contributions.

Do you think I should amend the 2019 tax return 1040 Line 1 to include the additional (about $1000) employer's Auto 1% + Matching contributions in addition to the employee contribution and capital gains already there?  Or find a way to fix it with the 2020 tax filing (which I am working on now)?

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ONLY the amount of your excess should have been reported. not any gains.  You report the excess on the 1040 line 1 as wages because you received a wage deduction by the employer for your contributions so you are just putting it back.  You did not receive any wage reduction for the gains or employer match.     Since the excess and capital gains should still be in the account then you will be taxed again when the money is finally distributed.   That double tax is the penalty for not removing it by the due date.

[fe7565]

I am sorry, but maybe I am confused by some of the terms.  Just want to make sure I understand it clearly.  

2019 TSP:   (none of this should have happened)

Employee contribution:  $2500

Agency 1% :                      $   400

Agency Matching:            $   600

Capital gains:                     $   200

Total:                                $    3700

In my 2019 Tax return I filed as income on 1040 Line 1:

Employee contribution:  $2500

Capital gains:                     $   200

Total:                                   $2700    ( so I over-payed the IRS by $200 which is the gain)

But what about these:

Agency 1% :                      $   400

Agency Matching:            $   600

These are still sitting in my TSP since 2019 and the TSP admin will not take it back passed 15 Apr 2020

Should I have done THIS in my 2019 filing?

2019 Tax , File as income  on 1040 Line 1:

Employee contribution:  $2500

Agency 1% :                      $   400

Agency Matching:            $   600

Total excess:                       $3500

If the answer to the above is YES, should I amend my 2019 tax return to reflect the:

what is still due =                      $3500     (total excess = employee + agency 1% + matching)

minus what I already  paid      $2700      (employee + gain)    (the $200 gain paid unnecessarily will offset part of excess still due)

difference                                     $700       (amend and add to 2019 Tax 1040 Line 1?)

Thank you very much.

[macuser_22]

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@fe7565 wrote:

I am sorry, but maybe I am confused by some of the terms.  Just want to make sure I understand it clearly.  

2019 TSP:   (none of this should have happened)

Employee contribution:  $2500

Agency 1% :                      $   400

Agency Matching:            $   600

Capital gains:                     $   200

Total:                                $    3700

In my 2019 Tax return I filed as income on 1040 Line 1:

Employee contribution:  $2500

Capital gains:                     $   200

Total:                                   $2700    ( so I over-payed the IRS by $200 which is the gain)

But what about these:

Agency 1% :                      $   400

Agency Matching:            $   600

These are still sitting in my TSP since 2019 and the TSP admin will not take it back passed 15 Apr 2020

Should I have done THIS in my 2019 filing?

2019 Tax , File as income  on 1040 Line 1:

Employee contribution:  $2500

Agency 1% :                      $   400

Agency Matching:            $   600

Total excess:                       $3500

If the answer to the above is YES, should I amend my 2019 tax return to reflect the:

what is still due =                      $3500     (total excess = employee + agency 1% + matching)

minus what I already  paid      $2700      (employee + gain)    (the $200 gain paid unnecessarily will offset part of excess still due)

difference                                     $700       (amend and add to 2019 Tax 1040 Line 1?)

Thank you very much.

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2019 line 1 should have had the $2,500 on  it.    All else stays in the plan.   When you withdraw the $2,500 as a normal distribution (after you retire probably) you will pay tax on it again.

[fe7565]

Excellent!  So I got this monkey off my back!  🙂    Well, yes I overpaid the IRS (by $200) for 2019, but on the long run it saves me much aggravation.   And maybe I can make that $200 overpayment adjustment after I reached 59 1/2 when/if I make a withdrawal.    If can't...that's fine too....I will write it off as "lesson paid".

Thank you again! 

[macuser_22]

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@fe7565 wrote:

  And maybe I can make that $200 overpayment adjustment after I reached 59 1/2 when/if I make a withdrawal.   

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No.  You cannot withdraw the earnings.  Any distribution will be taxable income.

The only way to get the credit for the $200 is to amend 2019 and remove the $200.   (If you are in the 24% tax bracket that would be a refund of about $48. - probably not worth amending for.)

[fe7565]

I see.  Thank you.   A comparatively small price to pay.   I really appreciate your help and patience.