ELECTED DEFERRALS EXEEDED

[ABRAHAM]

Client worked in two jobs. Made 401K contributions from both jobs. Total contribution for the year exceeded the allowable deduction. How to handle this excess contribution in the tax return

[rbynaker]

Step 1: Have the taxpayer get a corrective distribution from one of the plans before 7/15.  I usually recommend the "current" employer, 1) the current employer HR is often more accessible and 2) there's usually a lower amount of earnings that need to be withdrawn.  But there could be some wonky "employer matching" land mine out there somewhere that you don't want to step on.  So do what's going to result in the most money in retirement plans (or if your client is now unemployed, have them take the one with the most earnings, puts a bigger check in their hands).  Basically it's situational.

Step 2: If you're lucky you can get the custodian to tell you what 1099-R forms they're going to send out next January.  Given the COVID market slump there may not be any earnings (or even negative earnings).  Expect a 1099-R in 2020 with a code "P" on it (meaning it's taxable in 2019).

Step 3: Put the 1099-R Code P amount in now (even though you don't have the form yet) so it's included on the original 2019 tax return, otherwise you have to amend next year (and possibly pay interest/penalties).

Rick