402(g) Excess Deferrals-negative earnings and 1099-Rs

[AndrewZ]

"Earnings" on excess deferrals are required to be taxed in the year of distribution. When the principal amount is taxable in the prior year, and the earnings are negative (losses), how can you report negative earnings on a separate 1099-R? It seems the only solution is to report the net distribution (principal + losses) together on one 1099-R taxable in the prior year.

[Guest death and taxes]

My understanding is that when distributing an excess deferral (before April 15th) where there is an investment loss the amount of the excess deferral must be reported for the year of contribution and the loss for the year of distribution. For example, for tax year 2001, John Doe has an excess deferral of $1,000 and a loss of $100. A check will be issued to him for $900. A 1099R with a code "P" is issued for $1,000 and he will report this on his 2001 tax return . The excess deferral amount is listed in box 1 (gross distribution) and box 2a (taxable amount). Another 1099R with a code "8" is issued for the loss and he can claim this on his tax return for 2002. This would be reported as 0 in box 1 and box 2a and $100 in box 5 (employee contribution).

[david shipp]

Going back to Notice 89-32, which still appears to be controlling:

Given a $1000 excess deferal with a $100 loss and distribution is made in year following deferral -

$900 distribution made to participant

1099R reflects $900 distribution with code P

Participant must be given a statement to the effect that $1000 is to be reported as income on 1040 for year of deferral (89-32 says on line 7). Statement should also indicate that "the loss may be roported as a bracketed item on the Other Income line, Form 1040, for the approprpriate year (. . . ., the distribution year for corrective distributions after April 17, 1989)."

There is no separate reporting of the loss on any 1099R. The correlation of the deferral amount ( including the excess) that is reported on W-2 along with the net 1099R appears to be the substantiation of the loss (along with the statment given to the participant).

If anyone has found anything that updates Notice 89-32, please chime in.

[Archimage]

What about for excess deferrals after April 15th?