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Third, it is probably also a career limiting move if when changing jobs you lie to your new employer - who often (always, for my clients) ask if you've made contributions to another plan in that year, and if so, how much.


I've had 9 different employers over the past 34 years, all but one of which had no waiting periods (other than getting the paperwork filled out) to make contributions to their 401(k) plans. That one had a 3 month waiting period, and I started there in July, so I still contributed to 2 plans in that year. NONE of those employers ever asked a single question about contributions to a prior employer's 401(k) plan.

About 13 years ago, I self-limited my contributions in the one instance when I knew I could have gone over the limit and I missed maxing out my total 401(k) deferral for the year by about $75. But I only knew about the issue of contributing to 2 different plans because of being on these boards, and I chose to self-limit to avoid having to deal with notifying either employer's plan. Fidelity actually administered both of the plans, and they never gave me any warnings about the possibility of overcontributing. They had my SSN, so they could have cross-checked, but since they gave me no warnings, I doubt that they did. And if the plans had 2 different administrators, nobody but me and the IRS would have known about the overcontribution. And to Joel's point, the IRS doesn't seem to be policing it.

While I would never lie to an employer about this topic, if they asked, I don't think that nearly as many plans are asking as you seem to think are. So unless and until the IRS starts policing this, it seems to be a "don't ask, don't tell" issue, especially given that on the IRS website it says If an employee's total deferrals are more than the limit for that year, the employee should notify the plan and ask that the difference (called an excess deferral) be paid out of any of the plans that permit these distributions. (my emphasis added)

Given the cuts in funding for the IRS, I kind of doubt that the IRS will be able to add resources to start policing the issue any time soon.

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