What Happens if You Exceed $16,500 in 401K?

[Andre1969]

I switched companies in 2009, so I had two 401k plans to keep track of. I kept adjusting the contribution rate with the new company downward as I got closer to the end of the year, and ended up going over the $16,500 limit by something like $32. So I guess I did pretty good!

To sort that out, I had to fill out an excess deferral form, or something like that, that the new company provided. All I had to do was fill it out, and attach something that showed how much I had put into my other 401k, and then they mailed me my $32 back. And, come tax time, I had to pay taxes on that $32.

 

[Livefree]

We got a notice that the limits were changing next year to $17000 and the catchup stays at $5500..I thought the catchup limits were $6000? Or is that the limit for the Roth/Ira amount

 

[Trawler]

Correcting the excess

If you don't correct an excess contribution, you'll end up with double taxation: you're taxed on that money in the year you earn it and also in the year you take the money out of your account. To avoid that result you have to take a corrective distribution by April 15 of the following year. The corrective distribution will include the dollar amount necessary to bring your contributions within the limit, plus any investment earnings on that extra money for the time it was in your account.
You can take the corrective distribution from any account. For example, you might start out contributing to a traditional account and later contribute to a Roth account. It might seem logical that the Roth account is where you have the excess, because that's where you made the later contributions that put you over the limit. But you can choose to take the corrective distribution from the traditional account if that seems like better planning. Likewise, when two or more employers are involved, you can take the corrective distribution from the plan where you made the earlier contribution — if you can get the former employer to cooperate. The key is to get your total down to the limit with a distribution from some account by April 15.

 

[heirloom]

If you don't correct an excess contribution, you'll end up with double taxation: you're taxed on that money in the year you earn it and also in the year you take the money out of your account.

OK, I think I know what you're talking about now. If you are a highly compensated employee, you are only allowed the $22K this year.

But, if you are a regular payed employee like myself, you can put up to 49K into your 401K. I was reading your response to my husband and he reminded me of a couple yrs ago when he made too much because of overtime and his employer immediately quit putting money into his account.

But, I never had to worry about that.