Here's the scenerio:At the begining of this year I was working at company A. Then layoffs came and I got the axe. Fortunately I found new employment quickly with company B and immediately started contributing the max. to my new employer's 401k.Company B's 401k allows for a larger maximum percentage to be contributed per pay check than back at company A. This, combined with me receiving a little higher salary at Company B resulted in me reaching my total $10,500 contribution maximum last month.The concern:Since this year I both maxed out my 401k with company B and had some 401k withholding/contribution also with company A, my total combined (company A and B) 401k contributions for the year are over $10,500.The question:Am I going to have to pay a penalty tax? IOW, is the $10,500 max per employer or for the year in total?Thanks.
Am I going to have to pay a penalty tax? IOW, is the $10,500 max per employer or for the year in total?The limit is $10,500 per person not per employer. There shouldn't be any penalty but the excess would have to be refunded to you or go into the 401k as after tax contributions if the plan allows it. I think most plans do accept after tax money. Of cource the regular income tax needs to be paid and I'm not sure how the overage is discovered and how and which employer has to correct the records.
IOW, is the $10,500 max per employer or for the year in total?The $10,500 cap is per person, regardless of the number of employers/401k plans. I've just been going through the same thing myself (although, in my case, it was jiggering my percentage so I don't go over the limit). You have to fix the mistake, and the best way to handle it is probably to call the HR department of your current employer and figure out what options exist within your current plan. I don't think there is a financial penalty...you just have to undo the damage.It'll go more smoothly if you try to fix it this year rather than waiting until next year, because you'll have to deal with amended tax returns and stuff like that.Good Luck,JDOyster
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