Made an overcontribution to 401k

Forum|Forum|3 years ago
April 3, 2023
1 reply
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It looks like I have made an overpayment to my 401k. I am contacting the retirement program manager and they will email me a check with the extra amount. They mentioned I should be able to mark in turbotax that I have fixed the problem and that the IRS should expect next year to see 1099 with the extra payment. How can i do that in turbotax, please?

Thanks,

Eliyah

Best answer by MinhT1

@MinhT1 Thanks. If I do everything you said and get a refund from the 401 account of the excess contribution and then reported the excess contribution as an income in my 2022 tax return. If I do all of that; should I change the retirement contribution in box 12 in my W2 to remove the excess contribution or should I leave it as is?

Thanks again,

Eliyah

You should enter box 12 code D as it is on your form W-2.

MinhT1

Ask your 401(k) administrator to return the excess contributions (including the related earnings/losses) by April 18, 2023 and report the excess 401k contributions on your 1040 as Wages. Do not create your own 1099-R for this situation.

Pages 10 and 11 of IRS Pub 525 under Excess deferrals (the IRS term for 401K contribution is deferral) tells us:

If your deferrals exceed the limit, you must notify your plan by the date required by the plan. If the plan permits, the excess 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 permit 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 excess, 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 1a.

What you earned will be covered by a 1099-R for the following tax year and will be entered then as a normal 1099-R.

Below is how to do this in TurboTax:

Click on Federal in the left-hand column, then on Wages & Income
Continue and locate the section Less Common Income
Select Miscellaneous Income and click Start
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 through the questions till 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 "2022 Excess 401K Deferrals" and click on Done

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ekiladaAuthor

@MinhT1 Thank you so much. Please note that my excess contribution occurred in 2022. Should I report the excess money distribution in 2022 tax return (as a wage the way you described it), or should I just wait and report it in 2023 tax return since the 401k administrator will send me the 1099-R in 2024 for the excess distribution? I am thinking I should just report it in the 2023 tax return and do nothing extra in 2022 tax return. No?

Thanks!

MinhT1

No.

You must report the 2022 excess contribution to your 401(k) on your 2022 tax return using the instructions I gave above.

You will only report in 2023 the earnings you may have on that excess. These earnings will be reported together with the excess on a 2023 form 1099-R. But you do not report the excess contribution again in 2023, only the earnings. If there is a loss, that loss is not deductible.

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