How to handle extra 401K over contribution through tubotax?

[accounts4vikas]

I over contributed about $1000 over the $19500 401K limit in 2021 as I changed my employer. My current employer had 15th March as last date to notify their 401K handlers (Vanguard) which I missed. Today is 8th April and even though I will notify my employer to return the excess contribution, it may not happen by 15 April. I called Vanguard today and they are saying they cannot do anything now and suggested I talk to a tax expert. 

What options do I have in turbo tax to fix this situation if my employer is not able to return that extra contribution, their matching contribution, and any possible income generated on that extra contribution? Should I go to a tax expert to file my tax this year to help with this situation?

[DanaB27]

You must include the excess deferral in your wages in the year the excess deferral happened. 

Please follow these steps to report a 2021 excess 401(k) deferral:

1. Login to your TurboTax Account 
2. Click "Federal" from 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 "2021 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

Please be aware, that if you do not take out the excess amount by April 15th, then you are taxed twice on the excess deferral left in the plan.  This happens once when you contribute it (with the steps above) and again when you receive it as a distribution. You can't include the excess amount in the cost of the contract even though you included it in your income.

[vista25]

Working on my 2023 tax return here.

In TT, under the "On Demand Tax Guidance" window for "Steps to Take to Remove an Excess Salary Deferral," we are directed to figure out which retirement account we want to use to remove the excess, then notify the plan administrator, etc., then, assuming distribution is made by April 15, 2024: 

1. Report the excess deferral on your 2023 return in the Income section for Retirement Plans and Social Security whether or not you received a Form 1099-R before you file your return. Enter as much information as you can. Report the excess deferral amount in boxes 1 and 2a, and use code P in box 7. Indicate that this is a 2024 Form 1099-R.

2. In 2024, you will probably receive two Forms 1099-R. One reports the excess deferral amount. The other reports the earnings on the excess deferral. Enter both of these forms in your 2024 return, and we'll only add the earnings to your 2024 income.

This sounds different to me from the Step by Step shown in earlier post, which does not involve creating a dummy 1099-R for my 2023 tax return.  Am I missing something?

[DanaB27]

You can either create a Form 1099-R with code P or use the steps below. Both instructions will add the excess deferral to the wages on line 1h.

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 "2023 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 2024 tax filing due April 15, 2025: 

2024 Forms 1099-R will be issued reporting the excess.

• Form 1099-R with Code P in box 7 can be ignored if you reported the excess as described above in 2023. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2024.

You don't need to add the 2024 Form 1099-R with code P on your 2024 tax return since the code P and the follow-up question tells TurboTax to ignore the income and it won't make any changes to your 2024 return. Therefore, you only need to enter the 2024 Form with code 8 for the earnings on your 2024 return.