excess 401k contribution


A

Antony

Hi
I had two employers (not simultaneously) in 2008.
I contributed to both the 401k plans.
The total was in excess of the limit for 2008.
When I found out, I informed my second employer's 401k
institution sometime in April 2009.
They processed my request and sent me a check for the excess
and the transaction was made by them on April 15

I have not yet filed my 2008 taxes since I have filed an extension.

Here is what the letter from the 401k institution (I guess institution is the wrong word, but the
correct word escapes me) says

--quote--
The excess deferral amount may be taxable income for 2008. The gains if any are taxable income for 2009.

If the excess deferral experiences a decrease in value, the taxable amount is the full deferral
amount, unadjusted for loss. This amount will be greater than the amount reported on form 1099-R

You will received two form 1099-Rs for this distribution in January 2010. Keep a copy of this letter
and the Form 1099-Rs you received for your records.

This distribution is not eligible for roll-over into another qualified plan, or any IRA.

It is our understanding that this distribution is not subject to 10% early distribution tax
--end quote--

The excess amount is about $3100
They gave an additional check for about $15 that I think is the gains.

My tax software error check says I have excess contribution.

Summary is
excess contribution to 401k in 2008
received distribution of excess on April 15 2009
expected to receive 1099-Rs in January 2010

I called IRS and they said I should add the income to the 2008 1040 line 7 and next year when I
receive the 1099-Rs those forms would have appropriate information that tells IRS that the income
was in prior year and already taxed.

Is that good advice?
How should I go about doing this -
simply add the amount to what the software(I use taxcut) computes for 1040 line 7 for $3100 ?

Should I attach a piece of paper explaining anything with my return?

-Antony
 
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A

Alan

Antony said:
Hi
I had two employers (not simultaneously) in 2008.
I contributed to both the 401k plans.
The total was in excess of the limit for 2008.
When I found out, I informed my second employer's 401k
institution sometime in April 2009.
They processed my request and sent me a check for the excess
and the transaction was made by them on April 15

I have not yet filed my 2008 taxes since I have filed an extension.

Here is what the letter from the 401k institution (I guess institution
is the wrong word, but the correct word escapes me) says

--quote--
The excess deferral amount may be taxable income for 2008. The gains if
any are taxable income for 2009.

If the excess deferral experiences a decrease in value, the taxable
amount is the full deferral amount, unadjusted for loss. This amount
will be greater than the amount reported on form 1099-R

You will received two form 1099-Rs for this distribution in January
2010. Keep a copy of this letter and the Form 1099-Rs you received for
your records.

This distribution is not eligible for roll-over into another qualified
plan, or any IRA.

It is our understanding that this distribution is not subject to 10%
early distribution tax
--end quote--

The excess amount is about $3100
They gave an additional check for about $15 that I think is the gains.

My tax software error check says I have excess contribution.

Summary is
excess contribution to 401k in 2008
received distribution of excess on April 15 2009
expected to receive 1099-Rs in January 2010

I called IRS and they said I should add the income to the 2008 1040 line
7 and next year when I receive the 1099-Rs those forms would have
appropriate information that tells IRS that the income was in prior year
and already taxed.

Is that good advice?
How should I go about doing this -
simply add the amount to what the software(I use taxcut) computes for
1040 line 7 for $3100 ?

Should I attach a piece of paper explaining anything with my return?

-Antony
The IRS information is correct. The proper method is to add the
excess amount to Line 7 (Wages) on your 2008 tax return. Some tax
preparers prefer to add it to Line 21 because their software
allows them to make an entry for Line 21 which will print on the
1040 and get e-filed. In 2009, you report the total amount
received ($3115) as a gross pension distribution and you report
as taxable, the $15 (your earnings). The $15 is also subject to
the 10% ($2) early withdrawal penalty if you had not attained age
59 1/2. The 1099-R for the $3100 should have a Code P in Box 7.
This signifies it was taxable in 2008. The 1099-R for the $15
should have a Code 8 in Box 7. This signifies it is taxable in
2009. If you were not yet age 59 1/2, there should also be a Code
1 to go with the Code 8 in Box 7.
 
A

Arthur Kamlet

Hi
I had two employers (not simultaneously) in 2008.
I contributed to both the 401k plans.
The total was in excess of the limit for 2008.
When I found out, I informed my second employer's 401k
institution sometime in April 2009.
They processed my request and sent me a check for the excess
and the transaction was made by them on April 15

I have not yet filed my 2008 taxes since I have filed an extension.

Here is what the letter from the 401k institution (I guess institution
is the wrong word, but the
correct word escapes me) says

--quote--
The excess deferral amount may be taxable income for 2008. The gains if
any are taxable income for 2009.

If the excess deferral experiences a decrease in value, the taxable
amount is the full deferral
amount, unadjusted for loss. This amount will be greater than the amount
reported on form 1099-R

You will received two form 1099-Rs for this distribution in January
2010. Keep a copy of this letter
and the Form 1099-Rs you received for your records.

This distribution is not eligible for roll-over into another qualified
plan, or any IRA.

It is our understanding that this distribution is not subject to 10%
early distribution tax
--end quote--

The excess amount is about $3100
They gave an additional check for about $15 that I think is the gains.

My tax software error check says I have excess contribution.

Summary is
excess contribution to 401k in 2008
received distribution of excess on April 15 2009
expected to receive 1099-Rs in January 2010

I called IRS and they said I should add the income to the 2008 1040 line
7 and next year when I
receive the 1099-Rs those forms would have appropriate information that
tells IRS that the income
was in prior year and already taxed.







Well, how about that? The IRS got it right. Add the excess amount
to 2008 line 7 and feel free to attach an explanation or file form
4275 if you prefer.
 
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