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

[John Galt III]

Hi,

If I let my current 401K contributions continue as they are, I will go over $16,500 for 2010 pretty soon. As you know, $16,500 is the max allowed by IRS for 2010. Will my employer cap my contributions at $16,500 or will my 401K just continue to grow, but without the amount over $16,500 being tax deferred ?

Yes, I know about the $5,500 catchup contributions and yes, I am over 50, but I want to ask the question as though the catchup is not on the table.

(I am asking you guys instead of my employer, since they have proven to be clueless about the 401K in the past.)


Thanks

[nanannjen]

Your employer should do one of two things - either stop the contributions or continue them, but as post-tax contributions. Probably they will continue taking them. I guess you won't know for sure until after you max out the post-50 contributions!

[hakuna matata]

My employer stops taking them out once you reach the max you are allowed. I actually contribute more then the min. percentage to make sure I hit the $22,500 (in my case as I am 50) before years end. Plus side is that my last few paychecks (right before Christmas) are bigger and gives me some cushion room at that time of the year.

[tmm99]

I try to make it so it hits the max on the last paycheck of the year, but it is hard because I get a bonus in the late November and the amount is not fixed. I have hit my past in November in the past, but my 401K won't allow anything over the IRS limit, so it stops contributing earlier before the year is up. I try to max out on the last paycheck because my company matches 3% of my contribution for each pay period, so if I max out in November, there is no match for the two paychecks in December.

[ziggy29]

Quote:

Originally Posted by tmm99 I try to make it so it hits the max on the last paycheck of the year, but it is hard because I get a bonus in the late November and the amount is not fixed

Same here. Last year I worked it perfectly so that I maxed it on the final paycheck. My employer matches a percentage of each paycheck, not a fixed dollar amount, so if you "max out" too early, you lose a few pay periods of match. I may have to take my contributions down by 1% for a while to make sure that doesn't happen.

To the OP's question, unless multiple employers are involved I doubt their system will even allow you to overcontribute -- most will just stop the deductions when you hit your max (either $16,500 or $21,500 $22,000).

[Bestwifeever]

There was a thread here about overcontributing and I believe someone said the tax repercussions were a PITA to resolve. So I'd keep a close eye on it, especially if you find your company to be clueless about 401(k)s.

[LOL!]

Some strange math in this thread. In 2010, the max is $22,000 for deductible employee contributions if age 50 on 12/31/2010.

You should talk to your employer to figure out what they do. If the plan does not allow after-tax contributions, then they should stop accepting money after you hit $22K. But it is also possible that they screw it up and you will have to get the mess straightened out.

Usually it is not advisable to put after-tax money in the 401(k), but some (not all, not even most) plans will allow you to move that money separately into a Roth IRA while still employed (and perhaps over age 59.5). This is a backdoor way to contribute larger amounts to a Roth IRA.

So if the plan allows after-tax contributions, but not rollover into a Roth, you will probably not want to make those after-tax contributions.

[ziggy29]

Quote:

Originally Posted by LOL! Some strange math in this thread. In 2010, the max is $22,000 for deductible employee contributions if age 50 on 12/31/2010.

Fixed.

The math wasn't the problem. The problem was forgetting that the catchup amount is $5,500 and not $5,000....

[Texas Proud]

First... your employer should stop the contributions... and if they have any kind of good administrator it will happen...

But let me answer your question... but this was way back when and the rules were a bit different...

I could put up to 16% and the company would match up to 8%... so a good portion going in... I did NOT make the max contribution as I was not paid anywhere near what I should...

But, I did exceed the maximum PERCENT the law allowed (back then there was also a max percent).... this happened for three years...

The company had to give me the money back from the plan. If not, (and going from memory which could be mixing this up with something else) you would be taxed 100% of the amount you contributed over the max... so in a sense, they took it all...

I did have to pay taxes on the amount and penalty.. but the company did a gross up on this and paid it themselves... for me, it was not a PITA as the company did all the work.. I just got a check.

[DblDoc]

Quote:

Originally Posted by John Galt III (I am asking you guys instead of my employer, since they have proven to be clueless about the 401K in the past.) Thanks

Same situation for me as my HR dept is clueless. I would watch them like a hawk and make sure you turn off the contributions before exceeding the max.

DD

[Texas Proud]

OH... btw... I have not heard that bonuses were used for 401(k)s... no place that I worked would allow this...


Another thing... most companies that I know only pay matching based on each paycheck... so it you pay all of your money in early, you do not get maximum matching... you have to put some money in every paycheck... even the last one.

YMMV

[ziggy29]

Quote:

Originally Posted by Texas Proud OH... btw... I have not heard that bonuses were used for 401(k)s... no place that I worked would allow this...

My Megacorp definitely does this. Not only do they take out the usual 401K contribution percentage from my semi-annual bonus check, but they also match the first 5% of the bonus dollar for dollar.

[W2R]

1) Frank's company was one of those who accepted as much as you want to put in, though only $16,500+$5,500 went to tax sheltered contributions.

When he retired, he rolled over the tax sheltered part to an IRA. The rest went into another investment account.

2) Working for the federal government, our TSP (=401K) simply would not deduct any further money from my paycheck if/when I exceeded the yearly maximum. Since I had to contribute a certain percentage of each paycheck in order to get matching contributions for that pay period, I tried never to exceed the maximum.

[nwsteve]

While no guarantees for better results, I recommend you ask your 401k process questions directly of your Payroll Administrator/Mgr rather than HR. Often the Payroll function is in Finance and they do know exactly what their payroll programs will do.
HR tends to know about "policies" not necessarily how they get processed, especially if numbers are involved. ;-)
Nwstevce

[sn2792]

My Megacorp gives you a choice to either stop the contributions or change them to after-tax. It is an option you sign-up for on-line and they make the change automatically when the max is reached.

[Nords]

Quote:

Originally Posted by Bestwifeever There was a thread here about overcontributing and I believe someone said the tax repercussions were a PITA to resolve. So I'd keep a close eye on it, especially if you find your company to be clueless about 401(k)s.

IIRC it's reported to the IRS and the "excess" contribution is charged an annual 6% excise (penalty) tax.

The worst fix, but still effective, is to let the excess contribution be considered part of the following year's contribution. Of course that assumes the following year's contribution is reduced to accommodate the previous year's excess.

[fritz]

Quote:

Originally Posted by John Galt III Hi, If I let my current 401K contributions continue as they are, I will go over $16,500 for 2010 pretty soon. As you know, $16,500 is the max allowed by IRS for 2010. Will my employer cap my contributions at $16,500 or will my 401K just continue to grow, but without the amount over $16,500 being tax deferred ? Yes, I know about the $5,500 catchup contributions and yes, I am over 50, but I want to ask the question as though the catchup is not on the table. (I am asking you guys instead of my employer, since they have proven to be clueless about the 401K in the past.) Thanks

It's been mentioned a couple of times in replies, but would emphasize that the important thing to note is that companies usually stop contributing their matching amount when you max out your B/4 tax 401K withholding (and your contributions stop). Whether you go on to $22K or stop at $16,500 B/4 tax - most companies will stop your contributions (and theirs) when you max them out. Some automatically will move it to after tax. Surprisingly - many companies do not have their computers set up to automatically convert your regular 401K to a catch-up 401K. Both my last employer, and my wife's employer stopped at $16,500 and we had to have them add the catch up 401K to their automatic withholding scenarios (evidently, no one had ever contributed the max and there was no need to implement the catch up contribution scenario). You can lose the company match while they figure it out.

One's goal with 401K withholding should be to hit the end of the year with personal contributions that max out the available "company match" of your total compensation. I use to push a lot of contributions early in the year myself, but had to determine when to pull back so that the company match went to the end of the year. Suggest you go on to $22k and reduce your contributions so that the company match makes it to the end of the year. Why give up the free money

[John Galt III]

Thanks for the replies. I think I will just keep an eye on it, and make sure the contibs are stopped before going over the max. I don't have to worry about the employer match since there isn't any. They do have profit sharing, of about $2K per year, for which you must simply be enrolled in the 401K plan, even if you contribute none of your paycheck.

Something interesting I noticed was that in the plan administrator's website, which allows you to tweak all your investment parameters, they have 2 different cells on the screen for the $16,500 and the $5,500. The implication is that you can be contributing portions of each pay period to both the $16,500 and $5,500 simultaneously. (You don't have to max out the $16,500 before contributing to the $5,500. )

[skyvue]

I overcontributed last year by a couple hundred dollars unintentionally. I was counting on my last paycheck of the year that was dated Jan 1st (a friday) to be a 2010 contribution but instead they made it effective in the 2009 number. I didn't even know this until I received a check in the mail several months later from Fidelity. They refunded me the amount I went over the $16,500 limit.

[StTim]

It looks like this thread has been idle for a while, but hopefully someone is still watching it ...

I always calculate my 401k contributions to max out each year. This year I received separation pay from my previous employer who closed up shop and they took out for my 401k in that check. I took this into account when I started contributing at my new employer, but today (12/22) we received an unexpected holiday bonus. And, of course, they took 401k contribution out of that. My last paycheck for the year is tomorrow, but since they are not aware of my earlier contribution from my previous employer, they will not stop from taking out the full amount as scheduled. Any suggestions what I can do?