Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

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gophermobile
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Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

Post by gophermobile »

After staying at one company for a long time, I've switched jobs twice this year. I contributed about 15k to my 401k at company A, 1.2K at company B, and 3K at current company C, so I'm now close to the 19.5K contribution max. I'm wondering if it makes any sense to continue contributing to my 401k to receive more matching at company C (6%). After briefly reading about overcontributing, it looks like as long as you remove the employee excess and any earnings on it by tax date in 2022, there wouldn't be a penalty. It doesn't seem to mention anything about the employer match as long as I stay below the total limit (58K) which I would easily do.

This seems like a bad idea, and I'm guessing it's not worth the hassle (would get an extra 3-4k of money), and after telling my 401k provider that I needed some excess contributions removed I'm curious if they'd remove the associated employer match for that portion anyways. But just wanted to check to make sure this wasn't some simple loophole to use when changing jobs...
pasadena
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Re: Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

Post by pasadena »

I overcontributed a couple of years ago. When I requested a refund, they also took back their match on the excess contributions.
AnEngineer
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Re: Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

Post by AnEngineer »

pasadena wrote: Sun Sep 12, 2021 10:57 pm I overcontributed a couple of years ago. When I requested a refund, they also took back their match on the excess contributions.
I believe this is required. You want to remove unmatched contributions from an earlier employer, or just eat the penalty as worth it for the match.
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LadyGeek
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Re: Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

Post by LadyGeek »

Discussions of dishonest behavior or bypassing the law is totally unacceptable. I removed a post encouraging over-contributing to the account and not reporting the overcontribution.
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Re: Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

Post by LadyGeek »

When I changed jobs several years ago. I modeled my situation in my tax software and was very surprised to see it flag FICA (Social Security and Medicare) over-contributions. (I handled my IRA contributions separately.)

You may be in a similar situation. If so, the excess payments are deducted as a tax credit on your return. See: Publication 505 (2021), Tax Withholding and Estimated Tax, then search the page for "excess Social Security".

I would also suggest using the IRS Tax Withholding Estimator and adjust your current paycheck tax withholding to reflect the multiple job situation.
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pasadena
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Re: Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

Post by pasadena »

AnEngineer wrote: Mon Sep 13, 2021 5:19 am
pasadena wrote: Sun Sep 12, 2021 10:57 pm I overcontributed a couple of years ago. When I requested a refund, they also took back their match on the excess contributions.
I believe this is required. You want to remove unmatched contributions from an earlier employer, or just eat the penalty as worth it for the match.
I would be surprised if it wasn't. In my case I removed the excess from my new employer's plan. The match was slightly higher but they're a lot more efficient and I didn't want to have to deal with the previous one and their 401(k) custodian. I went with the easy option.
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theRoCK
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Re: Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

Post by theRoCK »

Another instance of the new employer clawing back their matching when I removed excess contributions after having switched jobs mid year.
AnEngineer
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Re: Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

Post by AnEngineer »

pasadena wrote: Mon Sep 13, 2021 10:34 am
AnEngineer wrote: Mon Sep 13, 2021 5:19 am
pasadena wrote: Sun Sep 12, 2021 10:57 pm I overcontributed a couple of years ago. When I requested a refund, they also took back their match on the excess contributions.
I believe this is required. You want to remove unmatched contributions from an earlier employer, or just eat the penalty as worth it for the match.
I would be surprised if it wasn't. In my case I removed the excess from my new employer's plan. The match was slightly higher but they're a lot more efficient and I didn't want to have to deal with the previous one and their 401(k) custodian. I went with the easy option.
You can leave it in, but it's not deductible and still taxed coming out. Worth it for the match, in my opinion.
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Re: Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

Post by TropikThunder »

LadyGeek wrote: Mon Sep 13, 2021 7:52 am Discussions of dishonest behavior or bypassing the law is totally unacceptable. I removed a post encouraging over-contributing to the account and not reporting the overcontribution.
Sincere question, is there actually an obligation to report the over contribution? Sprit Rider commented on numerous threads re: 401k over contribution and they consistently said there was no obligation to correct the overage, and that the custodian has no obligation to help you correct the mistake.

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Re: Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

Post by LadyGeek »

Bear in mind that all retirement plans are based in US law. As long as you comply with the law, there are no issues. (The removed post did not comply with US law.) Reporting your obligations is one way to address the discrepancy.

The linked thread (How to deal with 401k over-contribution (leaving excess in plan?)) discusses a second approach - how to handle the uncorrected excess contribution on your tax return.

If there are any further questions, feel free to bump the referenced thread. Let's focus on helping the OP here.
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nordsteve
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Re: Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

Post by nordsteve »

The match is a feature of the approved plan, and the plan sponsor must follow the approved plan, so if the plan is run correctly the excess match will be removed from the account.

https://www.irs.gov/retirement-plans/40 ... -employees
HomeStretch
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Re: Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

Post by HomeStretch »

nordsteve wrote: Tue Sep 14, 2021 8:25 am The match is a feature of the approved plan, and the plan sponsor must follow the approved plan, so if the plan is run correctly the excess match will be removed from the account.

https://www.irs.gov/retirement-plans/40 ... -employees
That’s true if the excess contribution is made to one employer plan. But if the excess contribution involves two employer plans, there is no way either employer plan will have plan controls in place to detect an excess contribution made to multiple employer plans. Employers/providers don’t communicate (and are not required to communicate) this information to one another. The only way either employer will know is if OP notifies them.

That said, my post is not intended to advocate for a financial maneuver where a participant knowingly makes excess contributions in order to receive multiple employer matches in a calendar year.
AnEngineer
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Re: Changed jobs - does it make any sense to overcontribute to my 401k to increase company match?

Post by AnEngineer »

HomeStretch wrote: Tue Sep 14, 2021 8:31 am That said, my post is not intended to advocate for a financial maneuver where a participant knowingly makes excess contributions in order to receive multiple employer matches in a calendar year.
Why not?
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