First, you need to request that your Plan Administrator distribute the excess amount by April 15, 2019, or you will end up being taxed on this money twice. You will pay tax in 2018 on the excess amount and then again when you withdraw it during retirement. For more information, check out Page 10 of IRS Pub 525 : https://www.irs.gov/pub/irs-pdf/p525.pdf.
Next, you should report the excess contribution on Line 1 of your 2018 Tax Return by following these steps:
- Login to your TurboTax Online Account
- Click "Take Me to My Return"
- Click "Federal" from the left side of your screen
- Scroll down to "Less Common Income" and click "Show More"
- Select "Miscellaneous Income" and click Start or Update
- Select "Other income not already reported on a Form W-2 or Form 1099" and click on Start
- Answer the Question "Did you receive any other wages? Yes
- Click "Continue" through the questions until you get to "Any Other Earned Income"
- Answer "Yes" to "Did you earn any other wages?
- Indicate "Other" as Source of Other Earned Income and click Continue
- For the description enter "2018 Excess 401K Deferrals" and click on Done
Note: Currently, there is an e-filing issue within TurboTax related to excess deferrals. An update to fix the issue is expected to be released around 4/5/2019. Be sure to sign up for updates to be alerted as soon as there is a solution. If you do not want to wait for an update, you have the option to paper file your tax returns as this is only an e-filing issue. You can check out this TurboTax FAQ for more information: Excess 401(k) Contribution Preventing E-filing.
