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Inadvertent overfunding of 401k

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  • Inadvertent overfunding of 401k

    I have a 403b and a 457 that I max out to $18,500 each. I started a moonlighting gig with another hospital. That hospital created a 401k and autodeducted a portion of my first check to it. (only 40 dollars or so). Upon seeing this I changed to no withdrawals to the 401k and I called the company that manages the moonlighting gig's 401k. They said that I could get the money back with taxes taken out if I send them a letter with proof that I maxed out my primary employers 403b to 18,500. At this moment I haven't maxed it out yet for the year since I spread the the investment out over the year. The rep for the 401k said I could settle it with them in 2019 before I file my federal taxes and they would mail me a check and a form for taxes. Does this sound legit?

  • #2
    They can not return the excess contribution until after the end of the year. It is entirely legit for them to want to see a copy of the W-2 received from the other employer(s) in January showing the amount(s) in Box 12. This is the only way they know the exact amount to return.

    They should return the excess contribution and earnings up to the end of the year. You will receive a W-2 from them in January showing the contribution and then a 1099-R also in January showing the distribution with a code indicating an excess contribution.

    They are not correct about taxes being taken out. From Form 1099-R Instructions, page 7; "Corrective distributions of excess deferrals are not subject to federal income tax withholding or social security and Medicare taxes."

    Also, from Form 1099-R Instructions, page 7; "If distributed by April 15 of the year following the year of deferral, the excess is taxable to the participant in the year of deferral (other than designated Roth contributions), but the earnings are taxable in the year distributed."

    If you haven't maxed out your 2018 contribution limit yet and your employer would give you a way to be precise (less than likely), it would be better to limit your deferrals there to $18,460. Then there would be no need to remove the excess contributions and taxable earnings.