Thank you ....Since there are two responses, to summarize My case is 401K contribution and not IRAI pay taxes on the excess deferral for 2019 including it as miscellaneous income I pay taxes on this money again some time in future when I take a regular distribution during retirement . So, excess distribution gets taxed twice and no other tax issues. right ?Should I contribute less to 401K in 2020?What about the gains to this excess amount, how to incorporate that ?Bullet by bullet:Understood.Correct.Correct.The excess deferral in 2019 has no bearing on how much you choose to defer in 2020. Of course you'll want to avoid making another excess deferral in 2020.The gains will be taxed when eventually distributed, just like any other pre-tax money in your 401(k).

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I have excess contribution to 401K plan by $3500 bcz of job change in 2019. My 401k provider do not allow to withdraw after feb 15. What do I do ?

Forum|Forum|6 years ago
March 4, 2020
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TurboTax Premier Online

Best answer by dmertz

Thank you ....

Since there are two responses, to summarize

My case is 401K contribution and not IRA
I pay taxes on the excess deferral for 2019 including it as miscellaneous income
I pay taxes on this money again some time in future when I take a regular distribution during retirement . So, excess distribution gets taxed twice and no other tax issues. right ?
Should I contribute less to 401K in 2020?
What about the gains to this excess amount, how to incorporate that ?

Bullet by bullet:

Understood.
Correct.
Correct.
The excess deferral in 2019 has no bearing on how much you choose to defer in 2020. Of course you'll want to avoid making another excess deferral in 2020.
The gains will be taxed when eventually distributed, just like any other pre-tax money in your 401(k).

DaveF1006

You will need to return the excess contribution from your own checking or savings to avoid the 6% penalty on the excess. You can also choose to pay the penalty of ($3500)(.06) =$210, which is a choice you would need to make.

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S

sujan-manoharAuthor

Thank you for the response. I did not understand about , returning excess contribution. Do I need to attach a check for excess amount with my return ? If I chose to pay penalty, I pay this with 2019 return ?..What is the procedure for doing so?

Some more insight on my scenario :

- My access contribution to 401K is $3571: [19458(traditional 401k) +3113 (Roth 401k)] - 19000 = $3571

I would have already paid tax on Roth 401k part. I am bit confused on how to go about this and steps to get this done through turbo tax

D

dmertz

Employee

You must include the $3,500 as miscellaneous income on Schedule 1. You make the entry under Wages & Income -> Less Common Income -> Miscellaneous Income, 1099-A, 1099-C -> Other income not already reported on a Form W-2 or Form 1099.

Since you are unable to obtain a corrective distribution of the excess, you'll eventually pay taxes on this money a second time when eventually distributed as a regular distribution. There is no other penalty, no 6% penalty.

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sujan-manoharAuthor

Thank you for the quick response. Follow up questions:

I did not understand second part of answer , "Pay taxes on this money a second time when eventually distributed as a regular distribution".
I would need to file $3500 as miscellaneous income and pay taxes on that in 2019 tax return, right ?
Do I need to take care anything more in next year return - 2020 return ?

I am hoping that I can resolve this situation in turbo tax and not seek out to file outside through a tax expert.

Thanks a lot!

T

ThomasM125

Assuming you can make the adjustment by reporting "other income" on your tax return, then you wouldn't have to do anything in the following year with regard to the over payment, the $3,500 entry would resolve the over payment issue.

Whether that is allowed or not, I can't confirm.

You could pay the penalty in 2019, then under fund your contribution for 2020 and that would resolve the over payment issue going forward.

Under either of these scenarios, you wouldn't have to take a distribution, which would be taxable if not taken in 2019.

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