ATX handling of excess IRA contributions

[David]

Client received a 1099-R with code 8 for excess contributions withdrawal. The 1099-R also shows the amount as taxable on line 2.

The ATX software is not treating this as taxable income. I thought this was OK since the TP probably did not get the tax free benefit of the excess contribution.

However, the TP says that this was due to his company making adjustments to their 401K plan because of the top heavy rules. TP says that the letter he received from HR indicates that this should be included as taxable income on his tax return.

Is ATX treating this correctly since the broker used code 8 in box 7?

How do I get the software to treat this as taxable income?

Thanks.

[kcjenkins]

Well, I found that if I put in the $ amounts, and the code, but did not check the box for IRA, it did not show up, but once I checked the box, it did show up on Line 15b,

[taxtrio]

What year is on the 1099R? If it is for 2007 (excess contribution from last year) then you need to ammend 2007.

If it is an excess contribution for 2008, then the employer should have adjusted the 2008 W-2 yet to be received.

I usually find that if it is code 8, that you usually get a message saying it must be included in the year the contribution was made.

Taxtrio

[David]

Well, I found that if I put in the $ amounts, and the code, but did not check the box for IRA, it did not show up, but once I checked the box, it did show up on Line 15b,

The 1099-R does not have the IRA box checked which is correct since it is a withdrawal for excess contributions from the employee's 401K plan.

Does it matter if I mark the IRA box when the 1099-R that was filed with the IRS doesn't have the IRA box marked?

I noticed if the IRA box isn't marked, the software inputs the taxable amount on line 7 as non W-2 wages- disability or deferrals (1099-R). Is this the correct treatment? Also, the excess contribution withdrawal shouldn't be subject to the 10% penalty, should it?

Believe it or not, this is related to a 2006 tax return. The TP is behind and I am getting them caught up. The excess contribution was related to 2005 but the distribution was taken in 2006 and the check was received in June of 2006.

Another thing I found out is that even though the 1099-R shows $5K as taxable distribution, the TP only received a check for $3K. The difference is the employer's match.

Shouldn't only $3K of the excess contribution distribution be shown as taxable income on the 1099-R? I can't see why the TP should be taxed on the employer's match that was pulled out of his 401K plan, especially since he didn't receive the funds.

If this is correct, how do I handle adjusting the $5K taxable income down to $3K taxable income?

Thanks.

[kcjenkins]

It is correct that if it's not from an IRA, it goes to line 7. But if he only received $3K, I'd ask a few questions before going ahead.

[Lion EA]

Why isn't it taxable wages on his 2005 return? Doesn't the return of an excess contribution to a 401(k) make everything as if the contribution had not taken place, in other words, replace it in his 2005 wages from which it came? Been a long time since I had one, so mainly I'm posting to get up to 500 posts before tax season gets real busy!