No. of Recommendations: 1
Greetings, Banaman8, and welcome. You wrote:

If I exceed the annual $10,500 limit in my 401k contributions (say $11,000) I understand I will pay income tax on the $500 in excess. But does anyone know if that $500 will still grow tax free, like the rest of the 401k? If so, shouldn't we be encouraged to contribute any additional monies we have to 401k rather than stick it into a separate long term growth account that has no tax advantages? While you still have to pay taxes on the income, at least the investment grows tax free.

If that excess contribution is to a plan with the same employer, then you will receive a forced corrective distribution of that amount plus any earnings attributed to it so that money CAN'T stay in the plan. Otherwise the entire plan would be disqualified, and all the money would be disbursed to all participants to be taxed and penalized for those younger than age 59 1/2.

Encourage you to make an excess contribution? I don't think so. :-)

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