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401(k) return of excess contributions

On March 14, 2007 I was paid a return of excess contributions from my 401(k) and will receive a 2007 1099-R with code P in January 2008, meaning it is taxable in 2006. I have not yet filed my 2006 return and would like to include this amount in my 2006 return rather than file a

1040x in 2008. I am using TaxAct for my 2006 return, and it only allows me to fill out a 2006 1099-R, not a 2007 1099-R. If I use code P, it puts the amount on line 16a of 2006 form 1040, and if I use code 8 it includes the amount on line 7 of 2006 form 1040. Either way, I'll be using a 2006 1099-R with my 2006 tax return, but will be receiving a 2007 1099- R in 2008. What is the best way to handle this?  
Reply to
Paul
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Page 22 of the 2006 Form 1040 Instructions (bottom of column III and continuing at the top of page 23) indicates that corrective distributions from qualified plans are reported on line 7. While I think code P is the preferable code, since TaxAct enters the distribution correctly with Code 8, use Code 8. When you get the 2007 Form 1099-R, just retain it with your tax records whether it shows distribution code P, 8, or D, as corrective distributions of excess contributions variously get reported.

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(Form 1040 Instr)
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(see CorrectiveDistributions, page 4, left column) Frederick Lorca

Reply to
Frederick Lorca

This is what you should do. You don't need a 1099-R.

Forget the 1099-R. See the instructions for line 7 of the

1040, which is where this amount belongs. Just add the amount to the 1040 line 7 figure and override.

-- Phil Marti Clarksburg, MD

Reply to
Phil Marti

If I override line 7, then I can't file electronically. If I file electronically with TaxAct using 2006 form 1099-R with code 8, form 1040 line 7 will contain the excess contriubution refund, but it won't match my W-2 and I can't explain the difference with electronic filing. I would think this might cause the IRS to question my return. Would it be better to submit my 2006 return without the excess contribution and wait until I receive the 2007 1099-R in January 2008 and then file a 1040x for 2006 (and a Massachusetts form CA-6)? Or would there be a penalty for waiting a year since the check was received in March 2006?

Reply to
Paul

File using the code 8 in the 1099-R. There is no requirement that line 7 match your W-2. Ira Smilovitz

Reply to
Ira Smilovitz

Would there be a penalty if I waited until I received the

2007 1099-R with code P in January 2008 and then filed a 1040x for my 2006 excess 401(k) contribution? (The excess was due to a failed ADP test).
Reply to
Paul

The underlying data in the efile itself (all those codes you have to key from the 1099R) explain the difference.

Plus I've never known the IRS to complain about someone reporting more income than the IRS knew about. ;)

Phoebe :)

Reply to
Phoebe Roberts, EA

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