Reporting Removal of Excess Deferrals

[Guest Rob Walter]

Would you report a loss on an excess deferral (pre-April 15th) separatly from the excess deferral, or once in the prior year net of the loss? For example, say a participant deferred $11,000 in '99 and the $1000 excess was worth $900 when it was removed in March. Would you report the $1000 in '99, and -$100 in 2000, or just the $900 in '99?

[Alf]

Treasury regulations are clear that losses are included as "allocable income." See TR 1.401(g)-1(e)(5)(i).

When gains are involved, two 1099-Rs are required. One reporting the amount of excess deferrals (the amount of the distribution less allocable income) and one reporting allocable income (amount of distribution less the excess deferral amount). However with losses, we just report the distributed amount on one 1099 and we provide a seperate statement to the participant on how to report the amounts on the individual's tax return. Notice 89-32, 1989-1 C.B. 671 controls and explains these rules.