401k Over contribution.

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Topic Author
NOgmacks
Posts: 169
Joined: Mon Dec 30, 2013 9:22 pm

401k Over contribution.

Post by NOgmacks »

Hello Bogleheads,

I am in a bind.

I left my previous employer in September 2021. During the last two paychecks, I maxed out my contributions $19,500.00. For this, I did not get any company match naturally.
My current employer is matching my 401k to a tune of $2400 dollars.
I called my previous employer's plan administrator to back off extra contribution, and they are saying that they cannot do that and I will have to ask my current employer to back off the excess contribution. If I do that, then, of course, I will lose all of my $2400 match from current employer.
Of course, this wasn't what I was told when I was leaving in september, by my previous employer. All they said: There is an excess contribution form you can fill out to back off the contributions. That's it.

What is my recourse?
aristotelian
Posts: 12262
Joined: Wed Jan 11, 2017 7:05 pm

Re: 401k Over contribution.

Post by aristotelian »

So both employer matches are "all or nothing", so if you contribute anything less than the max you get $0? That doesn't sound right.

How much are you seeking to contribute to the new employer plan?
Topic Author
NOgmacks
Posts: 169
Joined: Mon Dec 30, 2013 9:22 pm

Re: 401k Over contribution.

Post by NOgmacks »

WIth my new employer, I contributed $1600 until now with two most paychecks to go. By the end of the year, it should amount to $2400.

Which will be my excess contribution as far as IRS is concerned.
exodusNH
Posts: 10249
Joined: Wed Jan 06, 2021 7:21 pm

Re: 401k Over contribution.

Post by exodusNH »

NOgmacks wrote: Mon Dec 06, 2021 2:28 pm Hello Bogleheads,

I am in a bind.

I left my previous employer in September 2021. During the last two paychecks, I maxed out my contributions $19,500.00. For this, I did not get any company match naturally.
My current employer is matching my 401k to a tune of $2400 dollars.
I called my previous employer's plan administrator to back off extra contribution, and they are saying that they cannot do that and I will have to ask my current employer to back off the excess contribution. If I do that, then, of course, I will lose all of my $2400 match from current employer.
Of course, this wasn't what I was told when I was leaving in september, by my previous employer. All they said: There is an excess contribution form you can fill out to back off the contributions. That's it.

What is my recourse?
Don't worry about the overcontribution.

The only downside of overcontributing is that the excess cannot be deducted from your gross income. In other words, you lose the tax advantage.

With tax-deferred accounts, when you withdraw the money in retirement, it counts as regular income. For whatever amount you over-contributed this year, you'll pay taxes again when you withdraw.

E.g., you contributed $22,000 to your 401k in 2021. Your tax statements will add back that excess $1,500 to your income. 30 years from now, when you start pulling money out, you don't get credit for that $1,500 you paid taxes on. so, you'll pay another ~$350 in taxes. The extra $2,400 from your new employer more than makes up for that.
Topic Author
NOgmacks
Posts: 169
Joined: Mon Dec 30, 2013 9:22 pm

Re: 401k Over contribution.

Post by NOgmacks »

aristotelian wrote: Mon Dec 06, 2021 2:34 pm So both employer matches are "all or nothing", so if you contribute anything less than the max you get $0? That doesn't sound right.
I don't think I explained it correctly. I just paid about 4000 dollars in the last two paychecks in September, with the current employer. $2400 worth would be the excess contribution from my personal paycheck. All I was asking my 'previous' employer to do, is to back off part of the excess contribution I did in September right before leaving them. They are denying citing summary plan document.
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retiredjg
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Joined: Thu Jan 10, 2008 11:56 am

Re: 401k Over contribution.

Post by retiredjg »

If you have two different employers and end up going over the limit, you can tell whichever employer you want to remove the excess contribution. Since there was no match at the first employer, seems like that is the one to tell. I do not believe they have the option to deny it.

There apparently is also an option of just leaving it. However, the excess will NOT be deducted from your taxable income and you will theoretically pay tax on that money a second time when it is withdrawn in retirement.
exodusNH
Posts: 10249
Joined: Wed Jan 06, 2021 7:21 pm

Re: 401k Over contribution.

Post by exodusNH »

NOgmacks wrote: Mon Dec 06, 2021 2:45 pm
aristotelian wrote: Mon Dec 06, 2021 2:34 pm So both employer matches are "all or nothing", so if you contribute anything less than the max you get $0? That doesn't sound right.
I don't think I explained it correctly. I just paid about 4000 dollars in the last two paychecks in September, with the current employer. $2400 worth would be the excess contribution from my personal paycheck. All I was asking my 'previous' employer to do, is to back off part of the excess contribution I did in September right before leaving them. They are denying citing summary plan document.
So, your over-contribution will be $2,400 this year? All that means is that when you withdraw the money in retirement, you'll pay income tax on that $2,400 again, so ~$600. As long as your new company's match is more than that $600, you'll wind up ahead.
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Nate79
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Location: Delaware

Re: 401k Over contribution.

Post by Nate79 »

If they refuse to withdraw the excess then you are out of luck. As explained essentially you will be double taxed on the over contribution which isn't a big deal because you got your match. Lesson learned and not a big deal (because of the match).
Topic Author
NOgmacks
Posts: 169
Joined: Mon Dec 30, 2013 9:22 pm

Re: 401k Over contribution.

Post by NOgmacks »

Nate79 wrote: Mon Dec 06, 2021 5:00 pm If they refuse to withdraw the excess then you are out of luck. As explained essentially you will be double taxed on the over contribution which isn't a big deal because you got your match. Lesson learned and not a big deal (because of the match).
Understood, thank you.
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