Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

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Topic Author
needadvise1
Posts: 55
Joined: Wed Feb 07, 2018 8:58 pm

Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by needadvise1 »

I contributed 16,334.84 with a prior employer as of today's date.

Tomorrow I start with a new employer. They have asked me for my prior year contributions so they can set my maximum contribution limit.

I know I will get a refund check from the prior year employer anyways, as I expect the HCE limit to be hit around 14k. Is it possible to over-contribute to my new employer above the 18k IRS limit in anticipation of receiving some of this money back to remain under the federal year-end maximum? If so, what should I report to my new employer for prior year contributions, if anything?

If I do end up going over, can I "adjust" my 401k contributions after the year settles?
jacksonm
Posts: 234
Joined: Tue Oct 16, 2018 11:48 am

Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by jacksonm »

I doubt that your employer will allow you to go beyond the limit. In my experience, payroll systems automatically cut off contributions when you hit it. Even if it was allowed by 401k rules I doubt that your employer would be able to do it but this is a question best asked of them.
Topic Author
needadvise1
Posts: 55
Joined: Wed Feb 07, 2018 8:58 pm

Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by needadvise1 »

My new employer will not know my previous contributions unless I tell them.
MarkNYC
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Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by MarkNYC »

I don't think your idea will work, and you might end up with some unwanted IRS correspondence.

Let's say you expect a $2,500 repayment from employer A due to your HCE status, so you defer an amount with employer B that puts you $2,500 over the annual dollar limit for 401K deferrals. You end up with a $2,500 excess contribution with employer A and $2,500 excess deferrals for the year when combining deferrals from both employers. The $2,500 excess contribution you receive back from employer A does not reduce the amount you actually deferred as shown on your W-2, and both the excess contribution and the excess deferral will be taxable in the current year on the wage line of Form 1040. And the excess deferral must be withdrawn timely to avoid double taxation

I would advise against this plan.
jacksonm
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Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by jacksonm »

needadvise1 wrote: Sun Nov 25, 2018 1:19 pm My new employer will not know my previous contributions unless I tell them.
The IRS will. If you over-contribute it will show up on your W2 forms. What you do about that I have no idea. Sounds like a hassle to me.
bryansmile
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Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by bryansmile »

I over contributed one year due to job change. What happened was I had to pay taxes when filing my tax return. However, even if you've paid taxes, the 401k money still stays in before tax bucket and there's no way the plan admin will move it to after tax for you, and down the road you still have to pay taxes again during distribution. At least that's my own experience. Luckily it's not a lot of money so I just let it go.
Topic Author
needadvise1
Posts: 55
Joined: Wed Feb 07, 2018 8:58 pm

Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by needadvise1 »

Is it possible to withdraw same year 401k contributions now? That would be another solution. I could pull 4k out of the existing plan and just contribute it before the end of the year on the new plan.

I thought they restated the W2 with the correct amount, but you're right, that looks like its not the case. I believe you generously get it back the next year as taxable income.
_M_
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Joined: Sun Nov 25, 2018 5:38 pm

Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by _M_ »

I recently contacted my HR because I will likely overcontribute this year (and there’s little I can do to predict if it will happen or to prevent it from happening). The response I got was that it is not a big deal, as long as I fill out a “return of excess contribution” form before April. They already gave me the form in anticipation that I will likely overcontribute, I should be able to fill it out and submit it to the custodian when I get the W2.
So, maybe not a big deal then.
gazelle1991
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Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by gazelle1991 »

I overcontributed this year due to a job change. Per my research, it appears as long as you fill out an excess deferral removal form by 4/15, you are ok. Contact your plan administrator to get the form.
Dovahkiin
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Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by Dovahkiin »

One idea is you could try to roll over your old employer's 401k plan to an IRA or the new employer's 401k before they do the HCE refund. Then just contribute to the IRS max with the new employer. Sometimes they'd be willing to overnight the rollover check/etc for the cost of overnight service.
ryman554
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Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by ryman554 »

Dovahkiin wrote: Sun Nov 25, 2018 11:08 pm One idea is you could try to roll over your old employer's 401k plan to an IRA or the new employer's 401k before they do the HCE refund. Then just contribute to the IRS max with the new employer. Sometimes they'd be willing to overnight the rollover check/etc for the cost of overnight service.
For the love of all that is good, DO NOT DO THIS.

The HCE "return of $$" is required regardless of if you rolled over your funds somewhere else. The previous company is keenly interested in getting the money out of the 401(k) in the right way to keep the plan qualified under audit, so you now will have to deal with "unrolling" your rollover before getting your HCE funds returned. That is not a fun task between an inept 401(k) department (usually) and a slightly-less inept front line CS in your IRA.
ryman554
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Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by ryman554 »

needadvise1 wrote: Tue Nov 20, 2018 11:45 am I contributed 16,334.84 with a prior employer as of today's date.

Tomorrow I start with a new employer. They have asked me for my prior year contributions so they can set my maximum contribution limit.

I know I will get a refund check from the prior year employer anyways, as I expect the HCE limit to be hit around 14k. Is it possible to over-contribute to my new employer above the 18k IRS limit in anticipation of receiving some of this money back to remain under the federal year-end maximum? If so, what should I report to my new employer for prior year contributions, if anything?

If I do end up going over, can I "adjust" my 401k contributions after the year settles?
OP, you are getting a lot of incorrect advice here.

You are free to contribute up to the IRS maximum to both 401(k) plans, modulo any HCE shenanigans. As one poster said, the new company only knows about money you tell them about. Tell them an amount which will ultimately let you keep all $18.5k in a 401(k) somewhere, with some buffer.

By April 15 of the following year, you *must* make a "return of excess contributions* (there is a form for this) on at least one of your plans to get you down to the $18.5k limit, and it does not have to be the last plan you contribute to. Folks do this to get a better match out of their second company, for example, by requesting a return on money from their first employer.

So, feel free to contribute more than you need, deal with the HCE stuff, and get the rest of the money out of whatever 401(k) plan you want in the February time frame when the dust settles. You will own ordinary income for the over-contributed amount to 401(k) on your 2018 taxes (note: you are not double taxed, it's as if you never contributed it in the first place). You will owe ordinary income on the gains of said money in 2019 taxes.
Last edited by ryman554 on Mon Nov 26, 2018 8:20 am, edited 1 time in total.
jacksonm
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Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by jacksonm »

bryansmile wrote: Sun Nov 25, 2018 4:56 pm I over contributed one year due to job change. What happened was I had to pay taxes when filing my tax return. However, even if you've paid taxes, the 401k money still stays in before tax bucket and there's no way the plan admin will move it to after tax for you, and down the road you still have to pay taxes again during distribution. At least that's my own experience. Luckily it's not a lot of money so I just let it go.
So basically it sounds like the IRS penalty for over-contribution is double taxation. I think if I was the OP it would be something I would avoid.
ryman554
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Joined: Sun Jan 12, 2014 8:44 pm

Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by ryman554 »

jacksonm wrote: Mon Nov 26, 2018 8:20 am
bryansmile wrote: Sun Nov 25, 2018 4:56 pm I over contributed one year due to job change. What happened was I had to pay taxes when filing my tax return. However, even if you've paid taxes, the 401k money still stays in before tax bucket and there's no way the plan admin will move it to after tax for you, and down the road you still have to pay taxes again during distribution. At least that's my own experience. Luckily it's not a lot of money so I just let it go.
So basically it sounds like the IRS penalty for over-contribution is double taxation. I think if I was the OP it would be something I would avoid.
Absolutely not , if fixed properly. It sounds like bryansmile did not fix it properly. And, strangely, there is an IRS-approved remedy (and form!). It just needs to be completed by April 15.
jacksonm
Posts: 234
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Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by jacksonm »

ryman554 wrote: Mon Nov 26, 2018 8:22 am
jacksonm wrote: Mon Nov 26, 2018 8:20 am
bryansmile wrote: Sun Nov 25, 2018 4:56 pm I over contributed one year due to job change. What happened was I had to pay taxes when filing my tax return. However, even if you've paid taxes, the 401k money still stays in before tax bucket and there's no way the plan admin will move it to after tax for you, and down the road you still have to pay taxes again during distribution. At least that's my own experience. Luckily it's not a lot of money so I just let it go.
So basically it sounds like the IRS penalty for over-contribution is double taxation. I think if I was the OP it would be something I would avoid.
Absolutely not , if fixed properly. It sounds like bryansmile did not fix it properly. And, strangely, there is an IRS-approved remedy (and form!). It just needs to be completed by April 15.

I'm sure the OP will appreciate that but just combining the words "IRS" and "form" would be enough to scare me off.
ryman554
Posts: 1634
Joined: Sun Jan 12, 2014 8:44 pm

Re: Can I over-contribute to 401k plan between 2 employers in anticipation of HCE refund from old employer?

Post by ryman554 »

jacksonm wrote: Mon Nov 26, 2018 8:28 am
ryman554 wrote: Mon Nov 26, 2018 8:22 am
jacksonm wrote: Mon Nov 26, 2018 8:20 am
bryansmile wrote: Sun Nov 25, 2018 4:56 pm I over contributed one year due to job change. What happened was I had to pay taxes when filing my tax return. However, even if you've paid taxes, the 401k money still stays in before tax bucket and there's no way the plan admin will move it to after tax for you, and down the road you still have to pay taxes again during distribution. At least that's my own experience. Luckily it's not a lot of money so I just let it go.
So basically it sounds like the IRS penalty for over-contribution is double taxation. I think if I was the OP it would be something I would avoid.
Absolutely not , if fixed properly. It sounds like bryansmile did not fix it properly. And, strangely, there is an IRS-approved remedy (and form!). It just needs to be completed by April 15.

I'm sure the OP will appreciate that but just combining the words "IRS" and "form" would be enough to scare me off.
Not me. Do you fill out IRS Form 8606? In fact, the form is from your 401(k) provider, not the IRS. But you will get a 1099-R and have to make sure it's coded correctly. Just like you would do for form 8606 as part of a roth conversion.

The IRS is nothing to be afraid of. They are actually quite reasonable folks to deal with if you're following the law. This is one of those cases where it seems like you wouldn't be following the law, but you are. And it's pretty cut and dry in this case.

It's worth it to save $1k+ in taxes this year. (estimated $14k HCE limit vs 18.5k total limit = $4500 in potential extra funds * (.22 + whatever state rate))
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