Distribution Code for Excess Deferrals Due to 402(g) Limit in Current Year

[Vlad401k]

A participant deferred too much in 2026 and exceeded the 402(g) limit.

 

We calculated the earnings on the excess and will distribute the excess plus/minus earnings.

 

Which code should be used for this distribution? Should it be code 8?

 

How will this affect their taxes for 2026? Since the participant will be limited by the 402(g) limit on the tax return, would he be double taxed if he also reports the excess distribution (using code 8)?

 

Thanks!

[Bri]

the W-2 is going to show the too-big deferral, but the 1099-R will show the corresponding addition back to the income.  (And the code 8 is right, a 2026 distribution taxable in 2026.)

 

[Paul I]

If the excess amount adjusted for earnings is distributed on or before April 15, 2027, and the excess was pre-tax deferral, then use Code 8 on the 1099R.  If it was Roth, use 8B.

Any earnings will be taxable in the year of they are distributed from the plan.

There is no double taxation as @Bri notes since the 1099R adds the amount back to the participant's income.  If it was Roth, the 1099R also would report any non-taxable basis.