How to correctly report overcontribution to 401k, which was corrected before year end?

Forum|Forum|1 year ago
February 25, 2025
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I changed jobs in 2024 and overcontributed to my 401k. I asked my 1st job to remove the excess. They sent a check and 1099-R with codes 8 & 2. But TurboTax does not recognize it as correction of overcontribution, and asks me to take steps to correct the excess, even after I enter my 1099-R info. I am worried my 1099-R is incorrect, because I read here that it should be code P instead.

DanaB27

If you removed the 2024 excess deferral in 2024, your 2024 Form 1099-R should have code 8 in box 7. Income earned on an excess deferral will also be reported on Form 1099-R with code 8.

Code P is issued when you remove the 2024 excess in 2025 by April 15.

You only need to enter the Form 1099-R and TurboTax will add it to your wages and report it correctly on line 1h on Form 1040.

Please see Pub 525 additional information.

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TurboUser01Author

Thanks for clarifying.

After adding my 1099-R, only the gain seems to be added as income. The principal is somehow flagged as tax free.

For context, the contribution was Traditional 401k. But on my form, line 2a (taxable amount) shows the gain only. There is also a footnote that says:

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Box 2a may not be your actual taxable amount since after-tax contributions and outside accounts can have an impact in determining the taxable portion of your distribution. Please speak to your tax advisor for assistance in determining if part or all of your distribution is taxable.

DanaB27

It seems like your Form 1099-R isn't correct if it only shows the gains in box 2a. Form 1099-R instructions state: "Corrective distributions. Enter in box 2a the amount of excess deferrals, excess contributions, or excess aggregate contributions (other than employee contributions or designated Roth contributions)."

Since this was a 2024 excess deferral removed in 2024 both the excess deferral and the gains need to be added to your wages on line 1h.

You can add the excess deferral amount to line 1h with the steps below:

Login to your TurboTax Account
Click "Wages & Income" (under Federal) on the left side of your screen
Scroll down to "Less Common Income" and click "Show More"
Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
On the "Any Other Earned Income" screen enter "2024 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".