Jump to content

1099-R reporting for Excess Deferrals with Losses


Recommended Posts

How should the reporting be done on a 1099-R when the participant takes a distribution of corrective deferrals (over the 402g limit) after 12/31 and the deferrals had a net loss? I understand that only one 1099-R is issued and that the total amount (net of losses) is distributed to the participant with a separate statement noting that the participant will be taxed on the entire excess deferral amount in the previous year and he can take a tax deducation for the losses for the year in which distributed. However, which code should be used on the form? Should it just be code "P"? It doesn't make sense to me because the amount taxable in the previous year (which is the excess deferral amount) is greater than the amount actually distributed. Could someone please clarify?

Link to comment
Share on other sites

The excess deferral (over 402(g) limit) is taxable in the year deferred, so that get's code P.

The loss is reported on the 2015 tax return but because it is a loss, no 1099-R, just the letter.

see page 6 & 7 of the instructions http://www.irs.gov/pub/irs-pdf/i1099r.pdf

an example might help - Say participant has $1,000 excess deferral for 2014 with $100 loss.

Part gets a check for $900 (say on 2/2/15)

Part gets a 1099-R (in Jan 2016) indicating $1,000 taxable in 2014 (code - P). But has to claim it on the 2014 return filed by 4/1/15 (or later if extended)

Part uses letter to claim $100 loss on 2015 tax return.

same facts but $100 gain instead of loss.

Part gets a 1099-R (in Jan 2016) indicating $1,000 taxable in 2014 (code - P) But has to claim it on the 2014 return filed by 4/1/15 (or later if extended)

Part gets a 1099-R (in Jan 2016) indicating $100 taxable in 2015 (code - 8)

Adjust your years if you are doing 2014 1099-Rs now for stuff that happened last year.

It is kind of screwy in my opinion but I'm not the IRS.

I like how they simplified all the other refunds to "year received". Was really wacky when you used to have non calendar year plans with part of the refund taxable 2 years ago, good times. Always nice explaining to a participant why then now need to file an amended tax return from 2 years ago for a failed test now.

Link to comment
Share on other sites

  • 1 year later...

In this example where a 1099-R will be issued with code P for excess deferrals in the prior year, it can occur that this is determined after January, specifically when person realizes they deferred to two separate unrelated plans over 402(g). So when distributing excess deferrals prior to 4/15, there is a 1099. Is this 1099 normally issued right then, or wait until January of the following year when 1099s are normally issued even though now it's a year too late?

Link to comment
Share on other sites

TPApril,

The 1099-R applies to the year in which the distribution is done. Just because it's code P, doesn't mean you should issue the 1099-R earlier than usual. Remember, the participant will pay taxes on his tax return because he won't be able to deduct the whole amount he deferred. The 1099-R with code P simply states that the amount distributed has already been taxed in the prior year, so it doesn't need to be taxed again.

I've done a lot of research on this subject and there is just one aspect of excess deferrals that still doesn't make sense. If a participant deferred too much Roth contributions in the prior year AND there was a loss on those Roth contributions, how are the losses treated for tax purposes? I know that the whole amount will be distributed (and if it's after year end, the code will be "BP"). However, can the participant deduct the losses on the following tax return?? I know he can for normal elective deferrals, but since the Roth deferrals have already been taxed, it logically seems that the participant should not be able to deduct the losses! Even the ERISA books don't provide guidance regarding this question.

Link to comment
Share on other sites

ok I think I get it (summarizing my thoughts more than asking a follow up question)... When doing taxes, a person can only include up to the 402(g) limit, even if more than that was actually deferred. When the person is following the rules, that distribution will occur to correct for it, and as you say, the 1099-R indicates that it is not a taxable item in the current year.

as for your Roth scenario - good question!

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...