Excess 401k Contributions

[Rosario - CSLP]

Could someone help, please:

I have two separate clients who deferred in excess of the $22,500 for TY 2023 on their 401k.

If their request to withdraw the excess was sent "on time" before April 15th this year (and were told that they will receive a 1099-R for 2024 next year), how do I enter the deferral amount being returned to the client on their TY 2023 return?

I have read online about what people do, from entering it as "other income" to creating a fake 1099-R with code P.  All of that is confusing and may not be viable.  I would like to know how my fellow EAs solve this issue to state the client (in their TY 2003 return) is withdrawing the excess by April 15, 2024.

Also, how does it compare withdrawing excess from a pre-tax versus an after-tax 401k account? One of my clients is withdrawing her excess from her 401k Roth. More specifically, how do I enter it in the software? I have ProSeries professional.

Very appreciative, RC

[qbteachmt]

"If their request to withdraw the excess was sent "on time" before April 15th this year"

For future reference, they were supposed to have made this request by March 1, to get a corrected W2.

"Also, how does it compare withdrawing excess from a pre-tax versus an after-tax 401k account? One of my clients is withdrawing her excess from her 401k Roth."

In both cases, any earnings are taxable, are distributed in 2024, and thus will be reported for 2024 by entering the 1099-R. There should be two issued: one for the earnings and one for the corrective distribution. The earnings will not be code P; they are taxable for the year distributed.

For after-tax (Roth), you enter basis.

Expand this for the codes for how to enter 2023:

https://accountants.intuit.com/support/en-us/help-article/form-1099-r/entering-form-1099-r-proseries...

Expand this topic for Making Excess 401(k) Taxable:

https://accountants.intuit.com/support/en-us/help-article/other-articles/entering-keogh-sep-simple-p...

[Rosario - CSLP]

Thank you, qbteachmt,

I appreciate all the information shared.  Glad I know that it's possible to get a corrected W2 by acting on time.

Since the 1099 R forms will be issued next year, what do I need to enter, and where in the return, in this year's taxes, to inform the IRS that the taxpayer has withdrawn the excess contributions?

~RC

[dpatterson1171]

Rosario,

Thank you for asking this question.   I have the same scenario this year from an employee whose employer changed hands and he had excess Roth IRA contributions of $5,150.22 while working for the company who bought it. The 2nd company is going to issue 2 1099R's for next year but I also am struggling on how to report this on his 2023 return.  Hopefully they will get back to you so we both know.  Putting this out there to highlight the issue to a greater level for replies.    They also told me that they do not think a revised w-2 will be issued.

Thanks 

Dave

[qbteachmt]

"excess Roth IRA contributions"

This is why it helps not to put your specific issue in someone else's topic.

Roth IRA is not an employer account under an employer plan. Are you sure this is what your taxpayer has?

"The 2nd company is going to issue 2 1099R's for next year"

Because your taxpayer has requested a corrective distribution? Perhaps from a Roth 401(k) account? Or, because the new employer has terminated the plan of the old employer?

And how old is your taxpayer? Is he still working there? Is there a new plan?

"but I also am struggling on how to report this on his 2023 return."

Did you follow the links I already provided in this topic?Also, are you using Proseries? This is the "tax talk" community, so it isn't clearly identified which program you are using.

"Hopefully they will get back to you so we both know."

This is not Customer Support. You are posting on a peer user community. There is a lot of help already provided in this topic. It would be a good place to start.

"Putting this out there to highlight the issue to a greater level for replies. They also told me that they do not think a revised w-2 will be issued."

If your taxpayer requested a corrective distribution by March 1, there should be a W2c issued.

Once you read up on the issue using resources already provided, you might start your own topic under the software you are using, to get a targeted group of end users to be specifically helpful to your issue.

[dpatterson1171]

Thanks for the advice on posting topics.  

Yes, type error on my behalf.  this was an employer provided Roth 401(k).  2nd company took the operating agreement from company 1 but with their own HR and company benefits so like working for 2 separate companies.  Taxpayer is age 64.  

From what I am gathering is that the 2nd employer is refunding the excess and if any earnings and providing 2 1099R's for 2024.  Since this was a Roth 401k and over age 64, no adjustments need made to his 2023 return.  I am providing a supporting statement regarding this and that is was corrected prior to 4/24/15.  I am a Pro-Series Basic User.  They stated that no W2-C would be issued as well.

Please verify if all the above sounds correct and I apologize for the way presented and do appreciate your help not being a member but community help!   Thanks Dave

[qbteachmt]

"and he had excess Roth IRA contributions of $5,150.22 "

Even after adding in the consideration for the catch up of the additional $7,500? Total = $30,000 limit.

There is no tax benefit for Roth 401(k); it would not be on the W2, anyway. The excess, if removed before the filing deadline April 15, is moot for 2023 (timely). The 2024 1099-R will be coded for the prior year.

The earnings are taxable in the year distributed.

[dpatterson1171]

Thanks again for clarifying.   And yes, between the 2 employers he had $35,150.22 withheld.  I had already completed based on what you verified.  Thanks so much again.

Dave