itonewbie
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.

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Still an AllStar

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