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Excesss 401-K contributions

Forum|Forum|2 years ago
April 4, 2024
3 replies
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TP had 2 employers and contributed excess 401-K contributions. Too late to get a corrected W-2 c plus the administrators said that they withheld correctly.

I have read the excesss 401-k contribution discussions and I still can't figure out how to add the excess contributions to his wages for 2023.

The corrective distributions will have to be initiated by the TP at a later date.

Bottom line: How do I add the excess to Wages?

Thank you

ProSeries Basic

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Best answer by dascpa

I would plan on an extension for this client. Then I'd create (temporarily) a 1099-R from the 2nd employer and put the excess deferral as taxable income with a Code 8. The taxpayer will (eventually) receive the proper 1099-R for 2023 and then next year a 2024 1099-R for the earnings on the excess deferral.

dascpaAnswer

Level 11

I would plan on an extension for this client. Then I'd create (temporarily) a 1099-R from the 2nd employer and put the excess deferral as taxable income with a Code 8. The taxpayer will (eventually) receive the proper 1099-R for 2023 and then next year a 2024 1099-R for the earnings on the excess deferral.

rbynaker

Level 13

You used to put this on a fake 1099-R with code P and then scroll down and check a box that says something like "2024 1099-R received with code P". Maybe you still do. But now this goes on 1040 Line 1h. See if there's something you can drill down into from 1h and not have to go the "pretend" 1099-R route.

Camp1040Author

Level 10

I really want to avoid an extension since this TP has 6 state returns.

I'm trying to avoid the "fake1099R" so drilling down on line 1h brings me return of contributions and requires a 1099-R and code 8 as @dascpa posted. I'm considering other earned income but I really don't feel that route. I'm going to sleep on it...so tired today.

Thank you for the late evining response.@rbynaker & @dascpa

Who would issue the "fake" 1099-R, the employer or the administrator if I go that route so I can efile the return on time?

sjrcpa

Level 15

The Plan Administrator, of the Plan where he withdraws the money.

The more I know the more I don’t know.

qbteachmt

Level 15

"Too late to get a corrected W-2 c plus the administrators said that they withheld correctly."

The taxpayer would be responsible for setting up the new job knowing there is already some contribution for the year from the prior job.

The corrected W2 would be issued if the taxpayer had notified the plan administrator by March 1.

"The corrective distributions will have to be initiated by the TP at a later date."

From: https://www.irs.gov/retirement-plans/consequences-to-a-participant-who-makes-excess-deferrals-to-a-401k-plan

"Additionally, the corrective distribution must be made be made no later than April 15th following the close of the calendar year during which the excess deferral was made. See IRC Section 402(g)(2)(A)(ii). For example, excess deferrals made during 2016 must be distributed by April 15, 2017. This April 15th deadline is not postponed by extending the filing of the employee's federal income tax return."

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qbteachmt

Level 15

Just in case, I ran through the ITA for you:

"Excess Distribution

To correct the excess deferral, you must notify one or more of your plans. If the plan permits excess deferral distributions, the plan must:

Return the excess amount, along with any income earned on that amount, by April 15, 2024.
File a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for the year the plan returns the excess contribution to you.

If the excess deferrals are not corrected timely:

The excess amount is taxable to you in the year you made the contributions and in the year you receive them as a distribution from the plan (unless the excess deferral was a designated Roth contribution).
The earnings are taxable in the year they are distributed.

Reporting Requirements

You report the distribution listed on Form 1099-R on the wage line of your return if you receive it by April 15th after the year you contributed it to the plan:

Report your excess deferrals in the year you made them.
But, report the earnings on your excess deferrals in the year you receive them.

Corrective Distribution

When a plan returns excess deferrals to you, they're considered corrective distributions. They aren't considered a distribution from your plan.
Therefore:

You can't roll the distribution over into another plan,
You won't be subject to the 10% additional tax for early distribution,
Your distribution won't have the required 20% federal income tax withheld, and
Your distribution isn't subject to a spousal consent requirement."

Don't yell at us; we're volunteers

Camp1040Author

Level 10

Thank you!

If the excess deferrals are not corrected timely:

The excess amount is taxable to you in the year you made the contributions.

That is the big question I have, how to report the excess distribution on the 2023 tax return if not timely?

The client is contacting the plan admin for the corrective distribution but that form won't appear until 2025. I would think that is a timely correction (if it happens) and I would file the return as is and then report the 2024 1099-R with the correction next year?

A corrected W-2 is not an option...that is a quote from the employer.

I will reseach the links once I get caught up. Thank you.

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