Overpaid Employee part of Self-employed 401K & received refund. How should I report it after 1099-R?

[RocketReach]

Hello Turbotax community, 

I am an idiot. I had a W-2 income, for which I maxed out on my 401K in 2023 and also had self-employment (solo proprietorship) income, where I started a solo 401K. I was wrongly under the assumption that I could claim $22500 employee contributions for the solo proprietorship in addition to my W-2 related 401K. Thankfully, I realized this before submitting my taxes and before I had invested employee contributions money via my self-employed 401K investment broker. I am in the process of getting my employee contribution ($22500) of my self-employed 401K back from my investment broker (before April 15), but they mentioned they will issue a 1099-R and report this refund to the IRS (dunno when I will get it?). My question is, how do I report this in Turbotax for Mac?

The way I see it, I have two options: 

1) Report $22500 employee portion of my self-employed 401K as part of my schedule C and then also report the 1099-R. That way, my tax is appropriately calculated

2) Ignore the 1099-R (I don't even know when I will get it from my 401K investment broker. Pretty sure it won't be before the tax deadline) and don't make any mention of the employee portion of my self-employed 401K on my taxes (which is correct, as I cannot make any contributions there)

I suppose a third option is a variation of (1) where I pay some taxes and file for an extension. Then once I get the 1099-R, I go with (1).

Thoughts? 

[DianeW777]

It depends. Do not use the 1099-R in your 2023 tax return if you only made contributions in 2024.  You will get one in 2024, when the withdrawal is made, and the taxable amount will be only the earnings in 2024 because you will not take a deduction for this contribution on your 2023 tax return. You removed it and will act as though it was not contributed in 2023. 

If you did contribute in 2023, then you will have earnings to report for 2023. If you should get that information from your broker or plan administrator.   Next, you can enter a substitute1099-R to include in the 2023 return with only the earnings you received in 2023.  This will eliminate the need to amend your 2023 return when you actually receive the 1099-R in 2024. In this scenario, you will report earnings again in 2024, for only the amount you earned in 2024.

2023: If you enter a 1099-R you will reach a screen 'Do any of these situations apply to you?' select 'I need to file a substitute 1099-R' - see below. You will be required to file by mail using Form 4852. You can click the question mark beside the selection to read additional information.