Switched jobs - over contributed to my 401k - what if I do nothing?

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rasputin
Posts: 252
Joined: Tue Mar 29, 2011 6:40 pm

Switched jobs - over contributed to my 401k - what if I do nothing?

Post by rasputin » Mon Feb 11, 2019 12:26 am

I worked for two different companies last year. At my first job I maxed out my 401k. Then at my second job I made a an additional contribution by mistake. HOWEVER, my new company has a generous 401k matching program so I come out alright even if my portion of the money is being taxed twice. (on the way in and on the way out) My portion is about $400 so its not worth too much hassle to save a few tax dollars.

Everything I've read is about how to correct the situation but I'm curious - What if I do nothing? Just let it ride?

software
Posts: 175
Joined: Tue Apr 18, 2017 2:02 pm

Re: Switched jobs - over contributed to my 401k - what if I do nothing?

Post by software » Mon Feb 11, 2019 12:33 am

Taken from irs docs:
Excess not withdrawn by April 15. If you don't take out the excess deferral by April 15, 2019, the excess, though taxable in 2018, is not included in your cost basis in figuring the taxable amount of any eventual distributions from the plan. In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Also, if the entire deferral is allowed to stay in the plan, the plan may not be a qualified plan.

Topic Author
rasputin
Posts: 252
Joined: Tue Mar 29, 2011 6:40 pm

Re: Switched jobs - over contributed to my 401k - what if I do nothing?

Post by rasputin » Mon Feb 11, 2019 12:47 am

I should be more clear - what is the mechanism that a 401k plan determines that someone has over contributed due to contributions to another plan?

drk
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Location: Seattle

Re: Switched jobs - over contributed to my 401k - what if I do nothing?

Post by drk » Mon Feb 11, 2019 1:12 am

Your plan doesn’t do that because it’s entirely your responsibility. You need to talk to the plan administrator to ask them to refund the appropriate amount. They’ll ask for documentation from your previous plan to determine the amount.

The IRS knows because it’s on your W-2s.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Switched jobs - over contributed to my 401k - what if I do nothing?

Post by Spirit Rider » Mon Feb 11, 2019 1:18 am

software wrote:
Mon Feb 11, 2019 12:33 am
Also, if the entire deferral is allowed to stay in the plan, the plan may not be a qualified plan.
The potential plan disqualification is only with regards to excess deferrals entirely within one plan. It does not apply to excess deferrals caused by contributions to more than one plan.
rasputin wrote:
Mon Feb 11, 2019 12:47 am
I should be more clear - what is the mechanism that a 401k plan determines that someone has over contributed due to contributions to another plan?
They only know if you tell them. Keep in mind, you still have to report any pre-tax excess contribution as other income on Schedule 1 Line 21 even if you don't remove the excess contributions and earnings.

Topic Author
rasputin
Posts: 252
Joined: Tue Mar 29, 2011 6:40 pm

Re: Switched jobs - over contributed to my 401k - what if I do nothing?

Post by rasputin » Sun Jun 16, 2019 8:31 pm

I recently received a check from my 401k in the amount of last year's overpayment. I'm not sure which mechanism they use to determine overpayment but apparently its functional. If I had known, I might have tried to kick the money out of my previous 401k which didn't have a match.

Win some, lose some.

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