Form 1099-R Box 7 Code 8 for tax year 2020 - Excess 401K contributions from 2019

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May 5, 2021
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Hello,

I need some assistance here. I am working on my 2020 tax return. In the beginning of 2020, I was notified that I exceeded my allowable 401k contributions that was based from my 2019 contributions. There are calling it 401K excess contributions. The company handling our company retirement fund, did say that I will receive a 1099-R in 2020 which I did and I want to make sure I am handling the entry correctly. In 2019 I was 55 and in 2020 I was 56. I am not sure if you need to know my age but I figure I would supply it.

Recap - the 401K excess contributions was based off of my 2019 income however the money was paid back to me in the beginning of 2020. Now the 1099-R shows the following:

Box 1: $3666.49
Box 2a: $3666.49
Box 4: $733.30 (Federal Withholding)

Box 7: Code 8

First question is on my 2020, I should report the $3666.49 on my wages line correct? So the amount will be on my Form 1040 Line 1 - Wages Salaries etc, Correct?

Second question: The net result from the 1099-R I received was $2933.19 and I put that in a Edward Jones Traditional IRA account. I received my statement from Edward Jones and it shows the $2933 as a contribution in 2019. Now I did not put that $2933 on my 2019 return on Form 8606 because I honestly thought that it would get reported on my 2020 Form 8606. Due to my income earnings and the fact that I am covered in a 401K at work, my understanding is that the $2933 would be considered a Non Deductible Contribution. Should I have reported this on my 2019 Form 8606? If the answer is YES and I did not, can I add the amount to my 2020 Form 8606 on line 2 Your Total Basis in Traditional IRAs

And I have the same situation for 2020. and I make sure I report it correctly this year. In the beginning of 2021, I received noticed that again I over contributed to my 401K (401K excess contribution). The money I received back I contributed $4500 to the same Edward Jones Traditional IRA account the $2933 went into and I put 2500 into Edward Jones ROTH account. If I made a mistake on my 2019 by not reporting my nonductible contributions I want to make it right on my 2020. My statement from Edward Jones show for 2020 IRA contribution of $4500. Again with my income earnings and already participating in a employer based 401K, will I enter the $4500 as a nondeductible contribution for 2020 on line 1 of Form 8606?

If I did it correctly

Form 8606 would look like this

Part I

Line 1: $4500

Line 2: $2933 (last years contribution 2019)

Line 3: $7433 (adding lines 1 and line 2)

Line 6: $2933 (enter the value of all your traditional, SEP, etc as of December 31, 2020.

Lastly, Since I also contributed to a NEW ROTH Account, that does not get reported on Form 8606 correct?

And when the company issues me a 2021 1099-R next year for the excess 401k contributions, I would again have it added to my Wages Line correct?

Thank you in advance for your assistance.

LF

macuser_22

Employee

Just enter the 1099-R as it is and it will go on the 1040 line 1.

You need to amend 2019 and enter the 2019 Traditional IRA contribution and make it non-deductible if that is what you want or your incime is too high to deduct. That will add a 2018 8606 with the contribution on lines 1,3 and 14.

The 2020 8606 line 6 will be blank if you did not have any 2020 distributions and line 14 will be the same as line 3.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

T

taxesohmy2017Author

Employee

Thanks for responding Macuser_22.

Let me clarify:

1. I will enter the 1099-R on the 2020 tax return and it will appear income under Wages - got it!

2. Amend the 2019 and add $2933 as nondeductible contribution and mail it in the IRS. - got it! Do know if I have to send in the entire tax return or just the Form 8606?

Now for the 2020 tax year, I again had 401K excess contribution of $4500 that they paid back to me in March of 2021 and I put that into the same Traditional IRA account. Since my income is over the limit and I am covered on 401K work, wouldnt I include the $4500 on the 2020 Form 8606 line 1 as nondeductible contribution?

Thanks again for taking the time to answer my question and my follow up questions.

macuser_22

Employee

@taxesohmy2017 wrote:

Do know if I have to send in the entire tax return or just the Form 8606?

Now for the 2020 tax year, I again had 401K excess contribution of $4500 that they paid back to me in March of 2021 and I put that into the same Traditional IRA account. Since my income is over the limit and I am covered on 401K work, wouldnt I include the $4500 on the 2020 Form 8606 line 1 as nondeductible contribution?

You mail the 1040X and 8606 if that is all that changed.

A 2020 excess returned in 2021 will be reported on a 1099-R with a box 7 code P taxable in the year contributed. You should also get a 1099-R with code 8 for any earnings that were returned - that is taxable in the year returned.

If you made a 2020 non-deductible Traditional IRA contribution then it is reported on line 1 of a 2020 8606 form.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**