How to get company 401K matching after maxed out

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crypto11
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How to get company 401K matching after maxed out

Post by crypto11 »

I am changing jobs but I have already maxed out my 401K contributions for this year. Is there a way to get the 6% that my new company matches on the 401K even though I wont contribute to it (because I have already maxed out my contributions in the current job).

Or, asking a different question, what if I contribute 6% in the new job just to get the match, what happens with this extra money that I am contributing in the 401K after it is maxed out?
retiredjg
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Re: How to get company 401K matching after maxed out

Post by retiredjg »

You should not go over the annual limit. It will have to be fixed and that can be a mess. Just wait until next year.
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Re: How to get company 401K matching after maxed out

Post by badbreath »

crypto11

I am changing jobs but I have already maxed out my 401K contributions for this year. Is there a way to get the 6% that my new company matches on the 401K even though I wont contribute to it (because I have already maxed out my contributions in the current job). Check with HR they may contribute the match even if you put nothing in the 401k. My last company did so its posable.

Or, asking a different question, what if I contribute 6% in the new job just to get the match, what happens with this extra money that I am contributing in the 401K after it is maxed out?
If you have maxed out already at your last employer you are maxed out and should not put any more in a 401k
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Re: How to get company 401K matching after maxed out

Post by BernardShakey »

You've gone over the 19.5k limit for pre-tax or Roth ? Or you have exceeded the 57k (?) limit on total contributions ? If only the former, can't you contribute "after tax" money to the new company 401k to get the match ? Others here could confirm.
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JoMoney
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Re: How to get company 401K matching after maxed out

Post by JoMoney »

BernardShakey wrote: Sat Sep 26, 2020 6:52 pm You've gone over the 19.5k limit for pre-tax or Roth ? Or you have exceeded the 57k (?) limit on total contributions ? If only the former, can't you contribute "after tax" money to the new company 401k to get the match ? Others here could confirm.
It's plan dependent, some (many?) 401k plans do not allow after-tax contributions.
If the new plan does allow non-roth after-tax contributions, that would likely be the way to do it.
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Affable at 50
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Re: How to get company 401K matching after maxed out

Post by Affable at 50 »

JoMoney wrote: Sat Sep 26, 2020 7:00 pm
BernardShakey wrote: Sat Sep 26, 2020 6:52 pm You've gone over the 19.5k limit for pre-tax or Roth ? Or you have exceeded the 57k (?) limit on total contributions ? If only the former, can't you contribute "after tax" money to the new company 401k to get the match ? Others here could confirm.
It's plan dependent, some (many?) 401k plans do not allow after-tax contributions.
If the new plan does allow non-roth after-tax contributions, that would likely be the way to do it.
Congratulations on getting the maximum compensation deferral for 2020. Be careful over the next three-plus month. If you exceed the total of $19,500 and do not correct it by 4/15/2021 you’ll be taxed twice on the excess deferral. The $19,500 often requires thinking ahead.

Be mindful that if your new employer auto-enrolls new employees in their 401k you are responsible for notifying them of your status.

I am curious if you maxed out your previous employer’s match?
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Re: How to get company 401K matching after maxed out

Post by MathIsMyWayr »

Affable at 50 wrote: Sat Sep 26, 2020 7:41 pm
JoMoney wrote: Sat Sep 26, 2020 7:00 pm
BernardShakey wrote: Sat Sep 26, 2020 6:52 pm You've gone over the 19.5k limit for pre-tax or Roth ? Or you have exceeded the 57k (?) limit on total contributions ? If only the former, can't you contribute "after tax" money to the new company 401k to get the match ? Others here could confirm.
It's plan dependent, some (many?) 401k plans do not allow after-tax contributions.
If the new plan does allow non-roth after-tax contributions, that would likely be the way to do it.
Congratulations on getting the maximum compensation deferral for 2020. Be careful over the next three-plus month. If you exceed the total of $19,500 and do not correct it by 4/15/2021 you’ll be taxed twice on the excess deferral. The $19,500 often requires thinking ahead.

Be mindful that if your new employer auto-enrolls new employees in their 401k you are responsible for notifying them of your status.

I am curious if you maxed out your previous employer’s match?
If your new company's match is tied to your regular employee contribution, you are out of luck. Don't even think about match.
You only max out employer match by the annual total limit of $57,000 per plan.
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Re: How to get company 401K matching after maxed out

Post by lakpr »

Does your new employer offer a match on Roth-401k contributions? If so, do the Roth 401k contributions until the end of the year.

There is no mechanism to undo the 401k contributions that are made in excess, if you or your employer(s) do not take steps to correct them before tax deadline. Your alternatives are:

- Make a Traditional 401k contribution at the new employer. The combined W-2 forms will indicate excess deferral at year-end, and if you are unable to undo the withdrawal before April 15, 2021, then the tax software (or your CPA) must add back the excess to income and pay taxes. The end result is that the excess portion is taxed twice: going in, as ordinary income; and coming out, as ordinary income again.

- Make a Roth-401k contribution at the new employer. The combined W-2 forms will show only the max deferral (at the first employer). The "excess" Roth contributions at the new employer will not be reflected in Box-12 of the W-2 form from the new employer. Then, as long as you do not make any moves to remove the "excess" contributions at the new employer before April 15, 2021, the contributions would be locked with no mechanism to undo. To YOUR advantage.

- Of course, if the new employer does offer the Mega Backdoor Roth option (contribute after-tax money then convert immediately in-plan to Roth-401k or roll it over an external Roth IRA), choose that option first. But my experience is that the MBR contributions are not usually matched. VERY FEW employers match them.
Last edited by lakpr on Sun Sep 27, 2020 9:38 am, edited 1 time in total.
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Re: How to get company 401K matching after maxed out

Post by LadyGeek »

Discussions of dishonest behavior or bypassing the law is totally unacceptable. I removed a post suggesting an approach for excess Roth 401(k) contributions that may not be detected in IRS tax forms - unless the IRS catches you in an audit. This is tax evasion.

Update: The member has clarified that the post was not tax evasion.
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Re: How to get company 401K matching after maxed out

Post by backpacker61 »

JoMoney wrote: Sat Sep 26, 2020 7:00 pm It's plan dependent, some (many?) 401k plans do not allow after-tax contributions.
If the new plan does allow non-roth after-tax contributions, that would likely be the way to do it.
My own employer allows after-tax contributions, but the employer match is only done on 401K contributions.
I doubt OP can get any match on after-tax contributions.
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Re: How to get company 401K matching after maxed out

Post by retiredjg »

We have had people who did get an employer match on contributions sent to the after-tax account. It seems to be up to the plan. Of course, there is no indication this poster even has that after-tax option.
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JoMoney
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Re: How to get company 401K matching after maxed out

Post by JoMoney »

backpacker61 wrote: Sun Sep 27, 2020 8:35 am
JoMoney wrote: Sat Sep 26, 2020 7:00 pm It's plan dependent, some (many?) 401k plans do not allow after-tax contributions.
If the new plan does allow non-roth after-tax contributions, that would likely be the way to do it.
My own employer allows after-tax contributions, but the employer match is only done on 401K contributions.
I doubt OP can get any match on after-tax contributions.
Interesting, but that again is a plan specific thing.
My old employer allowed after-tax (non-roth) contributions, you could either designate to contribute after-tax or set it as a 'spillover election' where your contributions went after reaching the tax deduction or roth limit. Employer matching continued regardless of how the contribution was designated.
I've seen other plans where employers make a 401k contribution that's not even a 'match' (they just make a contribution regardless of any employee contribution), and other plans where the employers contribution is done at the end of the year as a annual bonus (not a match)... so with 401ks so much of this is 'plan specific' and unique to the individual employers plan.
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Re: How to get company 401K matching after maxed out

Post by the way »

LadyGeek wrote: Sun Sep 27, 2020 8:06 am Discussions of dishonest behavior or bypassing the law is totally unacceptable. I removed a post suggesting an approach for excess Roth 401(k) contributions that may not be detected in IRS tax forms - unless the IRS catches you in an audit. This is tax evasion.

Update: The member has clarified that the post was not tax evasion.
I'm not sure which post was flagged, but the one right above your comment seems really wrong on its face:
- Make a Roth-401k contribution at the new employer. The combined W-2 forms will show only the max deferral (at the first employer). The "excess" Roth contributions at the new employer will not be reflected in Box-12 of the W-2 form from the new employer. Then, as long as you do not make any moves to remove the "excess" contributions at the new employer before April 15, 2021, the contributions would be locked with no mechanism to undo. To YOUR advantage.
This does sound like tax fraud if you intentionally mis-report something - it doesn't matter if it does or doesn't show up on a W-2, you are required to fill in all info accurately.

This is the top hit on google https://fairmark.com/retirement/roth-ac ... -the-limit that explains that no, you do not get to escape the double-taxation. Maybe some of the tax specialists here can vouch for its accuracy.
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Re: How to get company 401K matching after maxed out

Post by retiredjg »

LadyGeek wrote: Sun Sep 27, 2020 8:06 am Update: The member has clarified that the post was not tax evasion.
I don't know if the suggestion is tax evasion or not. I don't know if it is illegal or not.

What seems apparent is that the post suggests that an employee intentionally exceed the statutory limit of $19.5k for elective deferrals and hope to get away with it.

It does not feel right to me for such a post to be allowed here.
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Re: How to get company 401K matching after maxed out

Post by lakpr »

I am going to address a few questions that were prompted by my post.

FIRST AND FOREMOST, I want to make it clear that I take the position: that which is not explicitly prohibited, is implicitly allowed. Do you agree with me or no? If you do not agree with this position, please do not read further, as it is absolutely clear that you and I do not see eye to eye on the issue.

Backdoor Roth and the ability to accelerate the depreciation the purchase of an SUV (in the past years) -- were a couple of other examples, exactly the kind that were spawned by "which is not explicitly prohibited, is implicitly allowed" principle/idea. Roth IRAs were originally made available with some income ceilings. Even the Roth conversions were limited initially, before they were removed, and rather unintentionally that gave rise to the Backdoor Roth method. Even the accelerated depreciation of an SUV vehicle used in the business, was originally meant to help farmers accelerate the depreciation of their farm equipment. The bill was originally written to allow such accelerated depreciation for vehicles that weighed more than 6000 pounds (and at the time the law was written over 90% of such vehicles were farm equipment, SUVs came much later).

I wrote that to address the specific sentence from @retiredjg: "What seems apparent is that the post suggests that an employee intentionally exceed the statutory limit of $19.5k for elective deferrals and hope to get away with it."

Backdoor Roth and the SUV depreciation deduction, sir, came exactly from such adventures. Someone "intentionally" made a non-deductible contribution and converted to Roth with no additional taxes due, bypassing the intent of the Congress that Roth accounts be locked out for high-income earners, and got away with it. Someone "intentionally" bought an SUV that weighed more than 6000 pounds, NOT a Farm equipment, and used the letter of the law to depreciate the purchase of that vehicle, used on highways and not on farms, and got away with it. To use someone's words -- read the article on this in some magazine -- "it's a tax loophole big enough to drive an SUV through". Perfectly legal!


Next, about the charge of tax fraud from "the way".

1. Where did I ever say "intentionally mis-report" something? When you file the taxes, the tax software (or the CPA, or the IRS forms, take your pick) ask for specific pieces of information. Supply them, and let the tax computations fall where they may. Before you accuse me of advocating tax fraud, show me exactly where did I say not to report everything. If the Box-12 in a W-2 form does not contain the Roth-401k contributions made by an employee, is it MY fault? If someone does exceed the $19.5k limit, intentionally or otherwise, what are the remedies that IRS offers to correct that? If there are no such remedies, is it MY fault?

Tax fraud is a crime and accusations of tax fraud means you are accusing me of criminal intent. I do take serious exception to such accusations.

2. Roth-401k contributions, as you may know, will have taxes due up front. The moment a Roth-401k contribution is made from your paycheck, the nature of that contribution is set in stone and cannot be changed ever again. Pay those taxes. IRS will and should get its due.

3. I take the position that what is asked for by IRS, supply that. I wouldn't ever say otherwise. IRS asks the information that's available on W-2 form, yes please, report that accurately, to the penny. The tax software computes the taxes based on those figures, pay those taxes.

4. About that Fairmark article, first time I read it. I think I can respect that position. It is different than what I had thought originally, but it's no great damage. All it says is that, whether you make an excess Roth contribution or an excess traditional contribution, the "penalty" you pay is just double taxing of the excess contribution. Surely we (and the OP) can live with that. It would be paying tax on a maximum of $19.5k, some 30 years later, when you well might be in a much lower tax bracket than now, and you will also be paying the tax with depreciated dollars. The tax brackets also would expand and indexed to inflation, so the net impact would be minimal. It would also neatly solve the OP's problem on how to capture full match from his new employer.

Even that Fairmark article mentions only "double taxation", but no mention of penalties anywhere in the article. Still seems to me that the OP can opt for Roth-401k contributions, but to minimize future tax bite, contribute only enough to capture full employer match. Even if some time in the future he'd have to pay taxes again on the "excess", surely that would be overwhelmed by the high "returns" in the form of employer match -- 50% to 75% immediate return. No reason to be foregoing that.

Lastly, a question to the moderators, board owners. If my philosophy (of 'that is not explicitly prohibited, is implicitly allowed') is at odds with the philosophy of this board I would happily and voluntarily leave the forum and this site (or will self-censor). Posters above feel that "it does not feel right such a post should be allowed here".
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Re: How to get company 401K matching after maxed out

Post by the way »

lakpr wrote: Sun Sep 27, 2020 9:19 pm 1. Where did I ever say "intentionally mis-report" something? When you file the taxes, the tax software (or the CPA, or the IRS forms, take your pick) ask for specific pieces of information. Supply them, and let the tax computations fall where they may. Before you accuse me of advocating tax fraud, show me exactly where did I say not to report everything. If the Box-12 in a W-2 form does not contain the Roth-401k contributions made by an employee, is it MY fault? If someone does exceed the $19.5k limit, intentionally or otherwise, what are the remedies that IRS offers to correct that? If there are no such remedies, is it MY fault?

Tax fraud is a crime and accusations of tax fraud means you are accusing me of criminal intent. I do take serious exception to such accusations.

2. Roth-401k contributions, as you may know, will have taxes due up front. The moment a Roth-401k contribution is made from your paycheck, the nature of that contribution is set in stone and cannot be changed ever again. Pay those taxes. IRS will and should get its due.

3. I take the position that what is asked for by IRS, supply that. I wouldn't ever say otherwise. IRS asks the information that's available on W-2 form, yes please, report that accurately, to the penny. The tax software computes the taxes based on those figures, pay those taxes.

4. About that Fairmark article, first time I read it. I think I can respect that position. It is different than what I had thought originally, but it's no great damage. All it says is that, whether you make an excess Roth contribution or an excess traditional contribution, the "penalty" you pay is just double taxing of the excess contribution. Surely we (and the OP) can live with that. It would be paying tax on a maximum of $19.5k, some 30 years later, when you well might be in a much lower tax bracket than now, and you will also be paying the tax with depreciated dollars. The tax brackets also would expand and indexed to inflation, so the net impact would be minimal. It would also neatly solve the OP's problem on how to capture full match from his new employer.
I think your "philosophy" is definitely at odds with filing requirements. Just because something is not reported to the IRS, does not mean you are off the hook (some common examples frequently warned about on BH are wash sales in different accounts, including IRAs, and the holding requirement for qualified dividends. You are responsible for correctly inputting the 1099 numbers adjusted for these differences, even though the broker does not report them).

If the OP followed your suggestion, they would need to report the excess 401k amount as other income when they fill out the 1040 (so they pay taxes on it now and again later when they withdraw). I'm not sure most people would be happy with that solution, and you should certainly make it clear if that is the advice you are going with. The Fairmark article walks through exactly this scenario.

btw, the W-2 does report both 401k and Roth 401k contributions in box 12, see code D and code AA. Maybe TurboTax will pick that up and do the right thing? I don't know if it's considered tax fraud to intentionally leave this off to fool TT, but it might be dishonest at the very least, which is what LadyGeek originally called it.
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Re: How to get company 401K matching after maxed out

Post by lakpr »

Once again, you assumed that I said somewhere, that one should not input all information from the W2 to Turbotax. Can you point where I said that?

Don't put words in my mouth that I haven't even said and accuse me first of tax fraud, then of dishonest behavior. It gets tiring after a while.
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Re: How to get company 401K matching after maxed out

Post by Affable at 50 »

Here is information from the IRS regarding the maximum salary deferrals if you’re eligible for more than one retirement plan. I am also sharing specific informal from the bottom of page on how to avoid the double taxation. If the OP wants to participate in his/her new employer’s plan he can contact his former employer to distribute (undo) a portion of the $19.5k that he/she contributed to the former employer’s plan. He/she has until April 15, 2021 to correct any excess deferrals.

https://www.irs.gov/retirement-plans/ho ... ement-plan

Distribution of excess contributions

If you do exceed your contribution limits, to avoid double taxation, contact your plan administrator and ask them to distribute any excess amounts. The plan should distribute the excess contribution to you by April 15 of the following year (or an earlier date specified in the plan). For information about taxes on excess contributions, see What Happens When an Employee has Elective Deferrals in Excess of the Limits?

https://www.irs.gov/retirement-plans/pl ... the-limits

When deciding from which plan to request a distribution of excess contributions keep in mind:

getting the maximum matching contribution that may be offered
type of investments
plan fees
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Re: How to get company 401K matching after maxed out

Post by willyd123 »

You may want to contact the 401(k) administrators in your prior and current company to see if they will help you with this issue. You may be able to get your prior employer to reverse some or all of your contributions to their plan and then have you current employer max out your contributions to that plan before the end of the year. Of course, you'd have to make sure the matching approach of your current employer's plan would work in your case (i.e. sometimes plan only match on a per payroll period basis).

This may be more than you want to bite off relative to the value of the match.
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Re: How to get company 401K matching after maxed out

Post by LadyGeek »

lakpr wrote: Sun Sep 27, 2020 9:19 pm Lastly, a question to the moderators, board owners. If my philosophy (of 'that is not explicitly prohibited, is implicitly allowed') is at odds with the philosophy of this board I would happily and voluntarily leave the forum and this site (or will self-censor). Posters above feel that "it does not feel right such a post should be allowed here".
I want to emphasize that the position of this site is to do things that comply with the law. However, there is a large gray where an action is legal, but would not be taken, because it provides an advantage over others who would not make that same choice. Quite simply, we're dealing with ethics.

I've stated this before in other threads:
For the record, discussions of dishonest behavior or bypassing the law are totally unacceptable.

The intent is to understand how to do this within the existing legal framework; in which case this discussion can continue.

Everything is a matter of degree. The choice of using a tax deferred account, e.g. IRA, to avoid taxes during some period of time is one extreme, managing assets to qualify for Medicaid is the other. Gifting assets to avoid taxes is somewhere in the middle. The bottom line is to work within the legal framework. Ethics is the ever present elephant in the room.

The approach is to educate members on how to do things legally. State your points in a factual manner. If the intent strays from this objective, please report the post and we'll investigate.
We have existing threads for the above situations and is why they were mentioned. This discussion happens to be about excess contributions to a 401(k) plan.

The bottom line is that lakpr's explanation of his position has no intent to bypass the law, but to instead work within it. This, and similar discussions which are influenced by ethical decisions, will continue.

All of this being said, let's refocus on helping the OP. If anyone has further comments on this issue, please PM me directly.
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Re: How to get company 401K matching after maxed out

Post by Slowtraveler »

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Last edited by Slowtraveler on Sun Nov 08, 2020 2:32 pm, edited 1 time in total.
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Re: How to get company 401K matching after maxed out

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (401(k) contributions.

Via PM, a member has provided this IRS perspective: Consequences to a Participant Who Makes Excess Deferrals to a 401k Plan
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Re: How to get company 401K matching after maxed out

Post by the way »

lakpr wrote: Sun Sep 27, 2020 11:06 pm Once again, you assumed that I said somewhere, that one should not input all information from the W2 to Turbotax. Can you point where I said that?

Don't put words in my mouth that I haven't even said and accuse me first of tax fraud, then of dishonest behavior. It gets tiring after a while.
I don't think I said you committed tax fraud or dishonest behavior, since you haven't said that you actually reported your own taxes this way. But I mainly wanted to warn the OP about the risks of taking your advice.

btw I tried this out in TT last night since I happened to have a previous year with two W-2s. Results were mixed. When exceeding the 19k limit when both are D or both AA, TT warned that the limit was exceeded and that you needed to go to a special section and include the extra income. When one was D and one was AA, TT didn't have the warning. And in either case, TT passed its final check without adding back the income so that seems like a big mistake. (I think the way TT's audit guarantee works is they will cover any penalties, but not any extra tax.)

Here's the TT page that walks you thru how to add back the missing income https://ttlc.intuit.com/community/retir ... /00/317496
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Re: How to get company 401K matching after maxed out

Post by TropikThunder »

Doesn’t the plan sponsor get in trouble for not correcting an excess contribution (like the whole plan is disqualified)? The fact that it’s a cumulative excess contribution for the employee but not from the second employer’s perspective doesn’t change the fact that employee B allowed an excess (maybe the advice is that they can’t get in trouble for something they didn’t know about).
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Re: How to get company 401K matching after maxed out

Post by Spirit Rider »

While Lakpr's position is aggressive, like many situations, I do not believe it constitutes tax evasion. Whether it is ethical I leave to others.

There have been many speculations and misstatements. Let's talk about relevant points:
  • We are talking about excess employee deferrals not excess contributions.
  • An employer only has a risk of plan disqualification, if the excess employee deferral occurs entirely within their plan. If so, the employer has the responsibility of removing the excess employee deferral.
  • When an excess employee deferral occurs over two or more plans. The excess can only be returned if done by 4/15 of the following year.
  • Only if they are pre-tax traditional deferrals are the returned excess deferrals include in income. This is because the were not originally included in the reported W-2 wages.
  • Returned designated Roth excess deferrals are not included in income, because they were originally included in the reported W-2 wages.
  • There is absolutely no requirement to return excess deferrals.
  • In fact an employer may but is not required to return excess deferrals when requested.
  • Not only is there no requirement to notify an employer that excess deferrals have occurred if you are not asking to return them. There is nothing for them to do with that information. There is no reporting of this fact.
  • The IRS takes no note of or tracking of excess W-2 Box 12 employee deferral amounts.
  • All of the discussions of double taxation of unreturned excess deferrals are exclusively referring to pre-tax traditional deferrals. This occurs through no special tracking or adminstrative actions, because the entire pre-tax balance is simply taxable on withdrawal.
  • There is no mechanism for tracking excess Roth deferrals, earnings on those deferrals or reporting of any distributions of such. There is simply no way for a taxpayer to know what of any Roth 401k distribution is taxable.
I am very conflicted by @lakpr's suggestion. I have been on both sides of this even month to month

I leave the OP one possible solution. Contact your previous employer to see that if you have excess deferrals, will they allow you to return them even if you are no longer employed. Only then would I intentionally make excess contributions to gain an employer match, knowing I can remove the excess amount from earlier deferrals. To me that would be the right thing to do
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Re: How to get company 401K matching after maxed out

Post by MathIsMyWayr »

willyd123 wrote: Mon Sep 28, 2020 6:09 am You may want to contact the 401(k) administrators in your prior and current company to see if they will help you with this issue. You may be able to get your prior employer to reverse some or all of your contributions to their plan and then have you current employer max out your contributions to that plan before the end of the year. Of course, you'd have to make sure the matching approach of your current employer's plan would work in your case (i.e. sometimes plan only match on a per payroll period basis).

This may be more than you want to bite off relative to the value of the match.
Great. You can be also selective. Don't forget to ask the former employer to reverse your contributions made when the market was high while keeping those made during the down market. :wink:
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