402(g) Excess Gap Period Loss

[Guest mac_qka]

I'm reading Publication 525 (2007) and just confusing myself even more. Obviously the bank can't issue a check and subsequent 1099R for the negative earnings adjustment. Can someone advise... I think participant gets a distribution for the net amount [excess deferral - earnings]. But 1099R will report gross amount??? According to Pub. 525, the loss is to be included on Form 1040, line 21 in the year of distribution. Okay, so what does the 1099R report? Net amount of distribuiton or gross amount? And, the check issued is for the net amount?

HELP!!!

[J Simmons]

I would do the the check for the net amount of excess deferral, report on the 1099-R the gross amount of the excess deferrals, and notify the EE in writing to claim the loss on Form 1040, line 21 in the year of distribution (rather than another 1099-R showing a negative amount).

[Harwood]

From 1099-R instructions, page 5

Losses. If a corrective distribution of an excess deferral is made in a year after the year of deferral and a net loss has been allocated to the excess deferral, report the corrective distribution amount in boxes 1 and 2a of Form 1099-R for the year of the distribution with the appropriate distribution code in box 7. If the excess deferrals consist of designated Roth account contributions, report the corrective distribution amount in box 1, 0 (zero) in box 2a, and the appropriate distribution code in box 7. However, taxpayers must include the total amount of the excess deferral (unadjusted for loss) in income in the year of deferral, and they may report a loss on the tax return for the year the corrective distribution is made.