401K Contributions Exceed Limits

Forum|Forum|6 years ago
February 15, 2020
1 reply
46 views

My client, under age 50, put $20,613 in their 401K for 2019 which has exceeded the $19,000 limit. I have explained what he needs to do to get this corrected before April 15th but if he doesn't how is the over contribution of $1,613 handled in Pro Series?

I don't see any forms or calculations for this, do I just show as income additional income on the Schedule 1 Line 8?

Thanks

GC

ProSeries Professional

This topic has been closed for replies.

Best answer by itonewbie

I suppose your client had this excess deferral because he changed job during 2019. Otherwise, his employer's 401(k) plan could be disqualified as a result of the excess deferral.

He needs to notify his employer(s) by March 1, so that corrective distribution(s) of the excess deferral along with allocable earnings could be made by April 15.

The excess deferral should be reported on Line 1 of F.1040 of 2019, not Line 8 of Sch 1. The earnings, on the other hand, would be reported only on his 2020 return. The 10% excise tax on distribution will not be applicable in this case.

In the event corrective distribution(s) is/are not made by April 15, the excess deferral will be subject to tax again in 2020 (in addition to 2019) because your client would be treated as not having a basis in the distribution, along with the earnings.

There will be no 1099-R for 2019. Two 1099-Rs will be issued next year for 2020 - one for the excess deferral with a Code P, which is for amount taxable in 2019 and another for the earnings taxable in 2020.

Your client has every incentive to make sure this is done correctly and within the prescribed time frame.

itonewbieAnswer

Level 15

I suppose your client had this excess deferral because he changed job during 2019. Otherwise, his employer's 401(k) plan could be disqualified as a result of the excess deferral.

He needs to notify his employer(s) by March 1, so that corrective distribution(s) of the excess deferral along with allocable earnings could be made by April 15.

The excess deferral should be reported on Line 1 of F.1040 of 2019, not Line 8 of Sch 1. The earnings, on the other hand, would be reported only on his 2020 return. The 10% excise tax on distribution will not be applicable in this case.

In the event corrective distribution(s) is/are not made by April 15, the excess deferral will be subject to tax again in 2020 (in addition to 2019) because your client would be treated as not having a basis in the distribution, along with the earnings.

There will be no 1099-R for 2019. Two 1099-Rs will be issued next year for 2020 - one for the excess deferral with a Code P, which is for amount taxable in 2019 and another for the earnings taxable in 2020.

Your client has every incentive to make sure this is done correctly and within the prescribed time frame.

---------------------------------------------------------------------------------Still an AllStar

G

Garcost48Author

Level 3

Itonewbie,

Thank you for the reply. To enter the excess amount on Line 1 of F1040 would I create a second W2 from the employer and enter the amount in Box 1?

GC

qbteachmt

Level 15

@Garcost48

Nothing that you do here has anything to do with a W2 from the employer, which you are Not providing to your client. That is from employer to employee, and you are not involved. The notification of excess contribution and its removal should result in the employer issuing a corrected W2.

Here:

https://www.investopedia.com/ask/answers/158.asp

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