Over Contributed Too Much to Solo 401k $1,800, need remove but account value $1,500 currently

Forum|Forum|4 years ago
February 25, 2022
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Ok so I'm an idiot and estimated my employer profit share solo 401k contribution wrong and when I did my taxes it worked out that I can only contribute $100 to it, but I contributed $1,900 a few months ago.

Current account value is $1,500

I need to remove $1,800 and just have the $100 as contributed like my taxes say.

My broker has the removal of excess form but I just don't know what to do in this situation I created for myself.

I'm in a pickle and I don't like pickles 😞

Not A Product Question

Best answer by DianeW777

Based on your information and since you did not deduct the $1,800 on your tax return for 2021, there is no income to report. And if you remove it before April 15th, you will not have any penalty. There would be nothing to add back to you income in your scenario.

As indicated by our awesome Tax Expert @DanaB27, you will likely have no earnings since your account lost money so there is no interest (earnings on the contribution) to report. You must have the brokerage firm calculate the loss and calculate the correct distribution amount.

With a market fluctuation taking place today it's quite normal to see a drop in value in a retirement account.

@mrtk31

DanaB27

Yes, you will have to remove the excess deferral by April 15th to avoid double taxation on the amount. You will request to remove the excess contribution, it seems as if you have a loss at the moment and therefore you will not have any taxable earnings. The brokerage firm should be able to calculate the loss and calculate the correct distribution amount.

You also have to include the excess deferral of $1,800 in your income, please follow these steps to enter this in TurboTax:

Please follow the steps below:

Login to your TurboTax Account
Click "Federal" from 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 "2021 Excess 401(k) Deferrals" for the description, enter the amount of $1,800 and click "Done".

Please note for the Tax Year 2022 tax filing due April 15, 2023:

2022 Forms 1099-R will be issued reporting the excess.

Form 1099-R with code P in box 7 can be ignored if you reported the excess as described above in 2021.
However, since you had a loss you should not get Form 1099-R with Code 8 in box 7 that reports earnings. Any earnings are reported in 2022.

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mrtk31Author

thank you for the help.

I'm confused what you mean about including the excess deferral $1,800 in my taxes.

I did my taxes and only put down a solo 401k trad employer contribution of $100 I did not put down $1,900.

The reason my confusion in what I should do is because my taxes show I only contributed $100 to my solo trad 401k not $1,900

If I do it like you said I would have to add an additional $1,800 of income which means I would be adding that $1,800 twice, and I did not earn $1,800 twice I only earned it 1 time.

I don't think that's fair that I have to add more income that I didn't even earn.