Retirement Plans

[Beejtheman]

Need the exact steps to remove an Excess Salary Deferral from my 2019 taxes. Help says "report the excess deferral in box 1 and 2a and use code P in box 7. Indicate that this is a 2020 Form 1099-R". Question: do I start a new 1099-R form for this entry, with the account information of the previous 1099-R that had the excess? Is there a sample completed version?

[macuser_22]

Was is a 2019 excess removed before April 1, 2020?

[Beejtheman]

Actually, will be removed before July 15 2020 now. Which means I will not get a new 1099 R in time.

[macuser_22]

Sorry, but it is too late to remove it at all.   April 15, 2020 was the cut off date.   You will not receive any 1099-R, but the excess is still taxable income on your 2019 tax return.

Because it must remain in the 401(k) plan as before-tax money, that means then when finally distributed as part of a normal 401(k) distribution, it will be taxed again.  That double tax is the penalty for not having it removed in a timely manner.

For information see IRS Pub 525 page 10
https://www.irs.gov/pub/irs-pdf/p525.pdf

Excess deferrals. If your deferrals exceed the limit, you must notify your plan by the date re-quired by the plan. If the plan permits, the ex-cess amount will be distributed to you. If you participate in more than one plan, you can have the excess paid out of any of the plans that per-mit these distributions. You must notify each plan by the date required by that plan of the amount to be paid from that particular plan. The plan must then pay you the amount of the ex-cess, along with any income earned on that amount, by April 15 of the following year.

You must include the excess deferral in your income for the year of the deferral. File Form 1040 or 1040-SR to add the excess deferral amount to your wages on line 1.

Excess not distributed. If you don't take out the excess amount, you can't include it in the cost of the contract even though you included it in your income. Therefore, you're taxed twice on the excess deferral left in the plan—once when you contribute it, and again when you receive it as a distribution (unless the excess deferral was a designated Roth contri-bution).

Because you will never receive a 1099-R, it cannot be entered with a 1099-R but there is another way to do that.

Enter this way:

Miscellionious Income ->
Other Income not reported on a W-2 ->
Other wages (yes) ->
House Hold employee (Continue) ->
Sick Pay (Continue) ->
Other earned income (yes) (Includes excess salary deferrals)->
Source of income (other) ->
Any other income - enter the amount of the excess deferral and an explanation.

This will add the taxable excess to your 2019 wages on the 1040 line 1 as required.

[BeginnerTaxFiler]

I had excess contributions to my  401K plan in 2022 which I withdrew on Jan 13, 2023. I did not get 1099-R and I  was told by Fidelity that I will not get 1099-R as it neglible not taxable income. Turbox tax give me a message that I have excess contribution.  The related instructions on Turbotax is asking me "report the excess deferral amount in Boxes 1 and 2a and use Code P in Box 7. Indicate that this is a 2023 Form 1099-R".

I am unable to figure out how do I  get to Boxes 1 and 2a ...etc. PLease help with step by step instructions.

The instructions below  (That I have followed but keep getting tubotax message that I have excess contributiob) are different to the one above. Please help!

Miscellionious Income ->
Other Income not reported on a W-2 ->
Other wages (yes) ->
House Hold employee (Continue) ->
Sick Pay (Continue) ->
Other earned income (yes) (Includes excess salary deferrals)->
Source of income (other) ->
Any other income - enter the amount of the excess deferral and an explanation.

[DanaB27]

Once you took corrective actions and added the excess deferral to the regular 401(k) you can ignore the warning in TurboTax. You don't get a penalty calculated but 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 below and again when you receive it as a distribution.

To report the excess deferral to a regular 401(k) you can either enter a 2023 Form 1099-R with code P or use the steps below (usually easier to enter):

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 "2022 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 2023 tax filing due April 15, 2024: 

• 2023 Form 1099-R with code P in box 7 can be ignored if you reported the excess as described above in 2022. 
• However, the earnings on 2023 Form 1099-R with Code 8 in box 7 should be reported in 2023.

Please be aware if you made an excess contribution to a Roth 401(k) and received the excess by April 15th, 2023,  then you do not add the excess to your 2022 income you will only report the earnings on your 2023 tax return.

@BeginnerTaxFiler