What Happens When You Contribute Over the Pre-Tax Limit for a Regular 401(k) Plan?


Quick Answer

Upon realizing that you contributed too much to your 401(k) plan in a given year, inform your plan administrator or employer, then make sure they return the money, states Investopedia. This should preferably occur by March 1 of the year following the tax year of the excessive contribution.

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Full Answer

After you notify the plan administrator, he should return the money to you by April 15, explains Investopedia. The return should not only include your excess contribution but the portion of any gains that came from that excess principal while it was in your 401(k) account. Add the principal contributions and earnings to your taxable income for that tax year. If your contributions came out pre-tax, remind your employer to provide you with an amended W-2 form reporting the returned funds as wages.

For example, if you contributed too much in 2011, then discovered the error on February 1, 2012, and notified your employer, you should receive the refunded excess contribution and any gains on that excess amount by April 15. That returned amount goes on your 2012 taxes as wages. If you notice during 2011 that you have contributed too much, and you receive the excess amount back during 2011, you need to ensure your employer included that returned amount on your 2011 W-2. If not, request an amended copy, to avoid ongoing penalties for unpaid taxes, states Investopedia.

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