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401k question
Old 01-29-2010, 03:32 AM   #1
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401k question

Pretty sure I know the answer but just to confirm...

If you max out your contributions to a 401k by mid year (say), then get another job at a different employer, you cannot sign up for their 401k until the next calendar year, correct? Otherwise you will have over contributed.


The other question, say you weren't paying attention and did it anyway - fully funded 2 401ks at 2 employers in one year. Is there any mechanism by which the feds would find out? I assure you I ask this out of mere academic interest.
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Old 01-29-2010, 06:31 AM   #2
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Pretty sure I know the answer but just to confirm...

If you max out your contributions to a 401k by mid year (say), then get another job at a different employer, you cannot sign up for their 401k until the next calendar year, correct? Otherwise you will have over contributed.


The other question, say you weren't paying attention and did it anyway - fully funded 2 401ks at 2 employers in one year. Is there any mechanism by which the feds would find out? I assure you I ask this out of mere academic interest.
I'm not sure how the 2nd employer finds out that the employee has already maxed out, but I believe that there is some mechanism for them to do so. I put in over the limit before at a single employer and received a check back for the amount over. The check amount was then added to my yearly earnings on my w-2 and subject to state and federal withholding. The good thing about this is that I didnt have to pay the tax until the 4th qtr for income that I received in an earlier qtr.

Good Luck!
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Old 01-29-2010, 08:22 AM   #3
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First... as you mention, you CAN do it... but it is not legal..

How they find out is your W-2. It has how much you contributed to your plan... add the two W-2s together and you are over..

The remedy is to take money out of one plan.... you have to inform them so they can adjust your W-2....
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Old 01-29-2010, 08:46 AM   #4
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The information on 401K contributions is sumbitted per requirement to the IRS. The IRS will NOT take an excuse from you like; "I just forgot"........ There is a form you would have to sign and submit, and the money has to be moved out of the plan. I have seen this happen a few times, and its a pain in the arse..........
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Old 01-29-2010, 10:27 AM   #5
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The information on 401K contributions is sumbitted per requirement to the IRS. The IRS will NOT take an excuse from you like; "I just forgot"........

That is, unless your a nominee for Treasury Secretary or something....
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Old 01-29-2010, 10:40 AM   #6
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It is a pain if you overcontribute. My understanding is that you have to remove all the excess contributions (and the earnings on the excess contributions) before the tax filing deadline in order to avoid penalties. Naturally, you will owe tax on the withdrawn amount.
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Old 01-29-2010, 10:40 AM   #7
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That is, unless your a nominee for Treasury Secretary or something....
Nah, apparently any cabinet level position will qualify you for exemption from getting thrown in federal prison for taking indecent liberties with your tax return. Numbers is hard though.
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Old 01-29-2010, 11:38 PM   #8
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I am not sure why anyone would want to over-contribute to their 401(k) early in the year. Yeah, in theory, it gets your money into the investments earlier, but you also may lose out on the company "matching" contributions if you aren't adding to your 401(k).

Max out your 401(k) by the end of June, and you end up losing 1/2 of the company match you could have gotten for the entire year. Of course, this assumes you believe you will have your job (or any job) for the entire year.
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Old 01-30-2010, 08:45 AM   #9
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I am not sure why anyone would want to over-contribute to their 401(k) early in the year. Yeah, in theory, it gets your money into the investments earlier, but you also may lose out on the company "matching" contributions if you aren't adding to your 401(k).

Max out your 401(k) by the end of June, and you end up losing 1/2 of the company match you could have gotten for the entire year. Of course, this assumes you believe you will have your job (or any job) for the entire year.
At my company employees at bonus level and above can contribute to a deferred income account after they have maxed out their 401(k). We can contribute max 50% per pay to the 401(k) and 16% per pay after that to the NQP. Many is the year I put 50% of my pay in for the first 5 pays of the year to hit the 16,500 401(k) max and then put 16% of my other 21 pays in to the Non Qualified Plan. I still get the company match of 3% (50% of the first 6%) and get paid the single A corporate bond rate on my balance in the deferred plan. About 5.5% which is pretty good!

Only downside is a) I am an unsecured creditor of my company and b) it is all taxable as ordinary income when I retire and can't be rolled over to an IRA (being a non qualified plan).

So never say never! Depends on the individual and his plan(s)!

PS this makes for some pretty lean paychecks through mid-March! Especially now that I am over 50 and am putting in 50% of my gross plus another $1100 in catch up contributions!
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Old 01-30-2010, 09:14 AM   #10
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I am not sure why anyone would want to over-contribute to their 401(k) early in the year. Yeah, in theory, it gets your money into the investments earlier, but you also may lose out on the company "matching" contributions if you aren't adding to your 401(k).

Max out your 401(k) by the end of June, and you end up losing 1/2 of the company match you could have gotten for the entire year. Of course, this assumes you believe you will have your job (or any job) for the entire year.
You *may*. Different plans have different funding mechanisms for the company match.

My Megacorp used to match dollar-for-dollar up to a fixed $5,000 per year but switched to a dollar-for-dollar up to 5% per pay period. (This, obviously, is a switch favorable to those earning over $100K.) Under the old system, you could contribute $5,000 in the first quarter, not contribute another dime and get the full match at the end of the year. Now any pay period you contribute less than 5% is leaving money on the table.
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Old 01-30-2010, 09:25 AM   #11
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I am not sure why anyone would want to over-contribute to their 401(k) early in the year. Yeah, in theory, it gets your money into the investments earlier, but you also may lose out on the company "matching" contributions if you aren't adding to your 401(k).

Max out your 401(k) by the end of June, and you end up losing 1/2 of the company match you could have gotten for the entire year. Of course, this assumes you believe you will have your job (or any job) for the entire year.
My company continued the match for the full 12 months regardless of whether or not you had maxed out, although not all companies do this, you need to check ahead of time.

I always used to max out by mid year. I never knew for sure I would have a job at the end of the year and I don't believe there is convincing evidence either way that averaging the contributions over 12 months instead of 6 made much of a difference in returns. I was just happy to get as much in the 401(k) as soon as I could each year.
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Old 01-30-2010, 10:00 AM   #12
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Going from memory here, so I might be in error. The contribution limits are based on what you contribute, so you can go to a new employer, immediately sign up for their 401k and get an employer contribution if the employer makes such a contribution. But if you have already maxed the employee share you can't contribute. The employer and employer share are treated differently.

I also believe that you have until April 15 of the next year to withdraw the excess. If you don't, there can be tax penalties.

I think one of the FAQs I did has information on this with supporting links.
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