Excess deferrals with losses

[Bird]

A participant has excess deferrals of $2000. There were losses during the year. My recollection, which might be wrong, is that the excess is taxed in the year of the contribution (2022) and the gains are taxed in the year distributed (2023) but how does this work with losses, or am I mistaken?

[Belgarath]

Yes, as I recall, (assuming you distribute by April 15th) the entire excess of $2,000 is reported for 2022. Then the distribution, which will be less than 2,000 due to losses, is reported for 2023 and the participant shows a loss on 2023 tax return. I believe there is an "other income" line on the 1040 where this would show the loss. 

But don't trust my memory...I don't! 

[Paul I]

Belgarath, don't give up on your memory.  The instructions to Form 1099-R say:

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
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.

[Bird]

Thanks so much? I was hung up on how the loss is accounted for and didn't realize it could be claimed.