How to handle 401k excess contribution

chuffedmuppet
chuffedmuppet Member Posts: 1 Newcomer
in Filing my taxes

I overcontributed to my 401k in 2025 and didn't notice until February of 2026. Once I did, my retirement provider sent me a withdrawal check for the amount of excess contribution plus some earnings.

Note: I did not request the withdrawal myself: it was a corrective measure taken by our payroll manager by sending a form with code 4 to our retirement provider. I'm not sure if this changes things.

I entered my W-2 information into FreeTaxUSA and it suggested that I file a prospective 1099R using Code 8 with my 2025 taxes to avoid needing to amend my return in 2026.

When I inquired with my retirement provider about this, they said my tax software should prompt me "to enter the 402g excess and confirm the excess has been revoked one you plug in all the numbers. You don't have to attach a 1099R to the return."

They also informed me that the 1099R I will receive from them in 2027 will use Code 8, which seems wrong as everything I've read states that Code 8 is for current year and Code P is for prior year.

Has anyone resolved a situation like this using the method mentioned by my provider? Should I stick to FreeTaxUSA's suggestion of filing my own Code 8?

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Comments

  • MatthewD
    MatthewD FreeTaxUSA Admin, FreeTaxUSA Agent Posts: 901 image
    edited March 17

    Hello chuffedmuppet,

    Thank you for posting in the community. This is not uncommon when a person changes jobs and are trying to contribute the maximum amount of 401(k) contributions each year. Because your new employer does not know about your previous contributions, your contributions end up going over the limit and you end up with an excess.

    Taking corrective measures:
    Our software does not currently have a method to enter a 402g excess correction. Our software will require a for 1099-R, which in your case will come in 2027. However, there are options.

    We have a very informative article in the Community. For details see: https://community.freetaxusa.com/kb/articles/342-what-happens-if-i-contribute-too-much-to-my-401-k?

    We also have several other discussions on this topic. Search for "401k excess contribution" in the community for details.

    You may also want to contact FreeTaxUSA customer support with any questions.

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