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Earnings on excess IRA contributions are always taxable in the year in which the excess was contributed. But when a 401k fails a test and distributes earnings, both the excess and earnings are taxable in the year distributed, not contributed. However, in your case you did a direct rollover, which is treated as including the excess contributions, so they were distributed from the 401k in 2020. In this case, 2020 became the taxable year for both due to transaction timing.
Don’t think I mentioned it before, but the 2500 excess contribution return from the 401k should show on on the wages line of Form 1040, not on line 5 for retirement plan distributions.
- This reply was modified 4 months, 3 weeks ago by Alan S..