Form 1099-R - Code P - Excess 401k Contributions | TaxAct Support (2024)

FAQs

Form 1099-R - Code P - Excess 401k Contributions | TaxAct Support? ›

How can we help? Code "P" indicates that the taxpayer contributed more than allowed to a 401k, IRA, etc. through payroll withholding. Excess contributions must be included as income for the year in which the contributions were made.

Any income earned from the excess contribution will count on your tax bill, which is due the following April. You'll receive a Form 1099-R at the end of the tax year in which the earnings were paid back to you.

Key Takeaways. An overcontribution is any amount that someone sets aside to a tax-deductible retirement plan that exceeds the maximum allowable contribution for a given period. The IRS imposes a 6% penalty for each year that any excess amount contributed remains in a retirement account until it is rectified.

Timely remove excess before the tax filing deadline

— The excess or unwanted IRA contribution amount, plus the net gain or loss, will need to be removed by the tax filing deadline (generally April 15), including an automatic six month extension.

How can we help? Code "P" indicates that the taxpayer contributed more than allowed to a 401k, IRA, etc. through payroll withholding. Excess contributions must be included as income for the year in which the contributions were made.

In a 401(k) plan, corrective distributions happen when the company must return a portion of the contributions made by "highly-compensated employees" (HCEs). Highly-compensated employees are those who own 5% or more of the company, or will have earned more than $155,000 in 2024.

The IRS requires the 1099-R for excess contributions to be created in the year the excess contribution is removed the from your traditional or Roth IRA. Box 7 of the 1099-R will report whether you removed a contribution that was deposited in the current or prior year for timely return of excess requests.

Roth IRA excess contributions are contributions that exceed your annual contribution limit for the year.

The IRS does require withholding, at a rate of at least 10%, on distributions of earnings attributable to returns of excess contributions to Roth IRAs, unless you elect NOT to have withholding apply by indicating this on your Return of Excess request.

How do I report excess 401k contribution on tax return? ›

If you received a 2023 401(k) excess deferral distribution in 2024, you'll receive a 2024 Form 1099-R with a distribution Code P in box 7; however, it must be included on your 2023 tax return. You have two options to do that: Wait until next year when you receive the 2024 Form 1099-R and amend your 2023 tax return.

If you do not elect out of withholding, Fidelity will withhold 10% of the earnings, if applicable, attributed to the excess contribution for federal income tax. State income tax may also apply if federal income tax is withheld.

Excess benefit 401(k) plans provide supplemental retirement income to employees who are limited in what they can contribute to, or receive from, a 401(k) plan. This is primarily due to various tax law limits that apply to qualified plans.

Traditional and Roth Excess Contribution Removal Deadline

This is typically April 15 of the following year (or October 15 if you're filing an extension).

If you discover it after you've filed your tax return

You can either: Remove the excess within 6 months and file an amended return by October 15—if eligible, the excess plus your earnings can be removed by this date.

The IRS puts annual income limits on a Roth IRA. When you exceed that limit, the IRS generally charges a 6% tax penalty for each year the excess contributions remain in your account. This is triggered at the time you file each year's taxes, giving you until that deadline to remove or recharacterize the misplaced funds.

However, once contributions are made into a 401(k) plan, they can rarely be withdrawn, even when a payroll reversal happens. Instead, if a payroll is reversed, the funds are distributed into “plan cash,” which is an unallocated account within the plan. These funds must be used to offset future costs and contributions.

Be aware you'll have to pay a 6% penalty each year for every year the excess amounts stay in the IRA. The tax can't be more than 6% of the total value of all your IRAs at the end of the tax year.