Over contributing 401k in 2022

Forum|Forum|3 years ago
January 25, 2023
2 replies
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Dear all,

Due to job changes I over contributed my 401k (two employers and two 401k management companies). I have a few questions and hope to get some information from your experts. (I do have knowledge about the general actions need to take, some deeper and details that I wish to have clarifications, TIA.)

1) Does it matter which plan I ask for return the excess contributions (ROE) ? Or it has to be the most recent plan?

2) If both employer has 401k matching, (say, I over contributed 5K and employer matched 2K), will the 401k company return ONLY my excessive contributions OR it will return both my excess over contribution PLUS the employer matching? (even though employer matching will not count towards the limit?)

3) If either single plan is over the limit, can I leave it as is and let turbo tax figure out the excessive amount and pay appropriate tax accordingly? Will IRS penalize me on this?

4) What is the deadline to file for ROE? (03/1/2022 or 04/15/2022)?

I appreciate your advice.

Dave

TurboTax Home & Biz Windows

DanaB27

1) It doesn't matter which plan returns the excess.

2) You only receive your contribution plus any earnings.

3) There isn't a penalty to pay for excess contributions to a 401(k). But if you do not take out the excess amount by April 15th, then you are taxed twice on the excess deferral left in the plan. This happens once when you contribute it and again when you receive it as a distribution. You can't include the excess amount in the cost of the contract even though you included it in your income.

4) It must be removed by April 15th, 2023 to avoid double taxation.

You must report the excess on your 2022 return regardless if you remove it or not. Please follow these steps to report a 2022 excess 401(k) deferral on your 2022 return:

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 "2022 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

If you receive the distribution of the excess deferral and earnings then please note for the Tax Year 2023 tax filing due April 15, 2024:

2023 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 2022.
However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2023.

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davoti2Author

Employee

Thanks for your quick help @DanaB27

1) my second question was actually that "will my employer contribution part also will be returned to my employer OR it will be left in my account?"

2) If I don't do ROE (just claim as misc. income on my 1040), I can wait till after 59 (or 65) after I retire for the second time it gets taxed when I try to get 401k distribution, is my understanding correct?

Thanks again.

Dave

DanaB27

The matching employer contribution will be returned to the employer.
Yes, you can decide when to take the distribution (wait until you retire). Yes, you will be taxed a second time when you get your 401(k) distribution, it will be taxable as a regular 401(k) distribution. The first time is when you report it on your 2022 return.

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vijayar

Hello @DanaB27 ,

Thank your for your detailed explanation to the original thread. I have similar situation, however I have just filed the Return of excess contribution with Fidelity. I’m expecting them to process it shortly before April 15. So I would like to understand if the procedure is same as above ie everything can be resolved with my 2022 tax filing or will anything need to be reported in 2023 return further? (I am just trying understand if the 1099-R issued will be applicable to 2022 or 2023 return?) Thanks and appreciate your response if I may have repeated any question.

LindaS5247

You will not have to report this on your 2023 tax return since you have opted to report it on your current return. Keep all of your paperwork with your tax documents.

You have two options for how to resolve your excess 401(K) deferrals:

Wait until next year when you receive the 2023 Form 1099-R and amend your 2022 tax return
Report it now on your 2022 return and ignore the 2023 1099-R when it comes next year
- If your 2023 Form 1099-R has an amount in box 4, Federal tax withholding and/or box 14 State withholding, then you must enter it on your 2023 tax return. The 2023 Code P won’t affect your return, but the withholdings will be applied to 2023.

Click here for additional information of excess contributions.

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vijayar

Thanks for your reply. I have added the "Misc. Income" section (as per this thread) for the distribution I just received from Fidelity. However TurboTax still complains about the excess 401k contribution when I click "Done with Income" .