Author Topic: Went over 401k limit  (Read 6912 times)

2Saving4Life

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Went over 401k limit
« on: November 25, 2014, 07:09:50 AM »
I just noticed that the company I work for didn't stop at the 401k limit. My pay stub says $17,500 but my online account says my contributions are $17576.68.  This doesn't include company contributions, that is under a different heading.  I'm going to talk to HR today and ask what happened.  Has this happened to anyone else?  What action is needed? 

CowboyAndIndian

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Re: Went over 401k limit
« Reply #1 on: November 25, 2014, 07:20:43 AM »
Is it possible that your contributions grew? Maybe some dividend payment?

You can verify how much you contributed for the year by totaling up the 401k contribution amounts and check if it matches the 17500 YTD amount.

If it was gains/dividends, congratulations. You are using your savings to earn more money.

Louisville

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Re: Went over 401k limit
« Reply #2 on: November 25, 2014, 07:26:17 AM »
I don't think OP is talking about his 401k balance, but rather his 2014 contributions. I've wondered my self what is the procedure when a 401k (or an IRA) gets more than the legal limit in a year. Do you have the custodian send the extra money back to you? How do you then handle that on your tax return? Or can you leave it invested and just not get the tax break (if it's non-Roth)?

hodedofome

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Re: Went over 401k limit
« Reply #3 on: November 25, 2014, 07:40:41 AM »
I've heard you can get locked up in federal tax prison for life if you overfund a 401k.

Louisville

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Re: Went over 401k limit
« Reply #4 on: November 25, 2014, 08:38:12 AM »
I've heard you can get locked up in federal tax prison for life if you overfund a 401k.
Well, your expenses would be low...

megamomo

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Re: Went over 401k limit
« Reply #5 on: November 25, 2014, 08:38:36 AM »
I have done this before also.  I do not remember all the details, but here is roughly what needs to happen.

You need to request that the overage and any associated gains/losses get refunded to you.  I think the deadline is 4/15 of next year, but I recommend doing it now or at least before 12/31.  I believe the refund check comes directly from the brokerage then.  Mine had 10% taken out.  They will send you a 1099-R at the end of the year which you will need to report on your regular taxes as income.

In the end, the overage is just treated as regular income.  Sure it had 10% taken out immediately, and any difference you owe gets resolved when you file your taxes.

Franklin

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Re: Went over 401k limit
« Reply #6 on: November 25, 2014, 08:52:35 AM »
Seems to me HR and/or Payroll did you a disservice.  My accounting department stops on the button at 17500 every year.  I thought they were required to do it but from yours and others comments it seems that it is discretionary. 

virtuaLOK

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Re: Went over 401k limit
« Reply #7 on: November 25, 2014, 09:20:38 AM »
After-Tax Contributions and a Surprise Gift from the IRS
http://www.madfientist.com/after-tax-contributions/

Came across this article yesterday, but not sure if it applies to your situation.

dodojojo

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Re: Went over 401k limit
« Reply #8 on: November 25, 2014, 09:28:52 AM »
My company takes out 401K contributions on a percentage basis.  I joined the company mid-year so I had already contributed over 50% in another 401K plan.  I calculated my total 401K contributions so far and with 3 remaining pay periods, I'm going to end up $2 over 17,500.   I could lower my contribution for the last pay period by 1%.  That would mean I would fall short of the $17,500 max, but I wouldn't have to deal with the tax issues on the $2 overage.  So annoying. 

2Saving4Life

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Re: Went over 401k limit
« Reply #9 on: November 25, 2014, 06:50:22 PM »
I talked to HR today and was told that the extra $76.68 was from my last paycheck in December 2013 and it didn't get into my account until 2014.  I was informed that it doesn't count toward 2014 because it was work done in 2013. We don't get paid until the first of the month, but the end of the pay period was Dec. 31. So it wasn't deposited until Jan 2014.  Seems odd Fidelity would show my yearly contributions above $17,500 but the explanation given makes sense.  I guess if something is wrong, I will find out at tax time. Thanks for everyone's help. 
« Last Edit: November 25, 2014, 06:54:08 PM by 2Saving4Life »

ijingle

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Re: Went over 401k limit
« Reply #10 on: November 25, 2014, 08:12:22 PM »
I've yet to max my 401k but I've been wondering how the logistics of maxing out will work. Do you maxers calculate exactly how much percentage or dollar amount to contribute each month to hit 17500, or do you just contribute whatever amount and it stops getting funded automatically once the 17500 limit is hit?

kkbmustang

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Re: Went over 401k limit
« Reply #11 on: November 25, 2014, 10:53:00 PM »
I've yet to max my 401k but I've been wondering how the logistics of maxing out will work. Do you maxers calculate exactly how much percentage or dollar amount to contribute each month to hit 17500, or do you just contribute whatever amount and it stops getting funded automatically once the 17500 limit is hit?

You can do any of those you mentioned, so long as they comply with the plan's requirements.

Usually, the third party administrator (Fidelity, Vanguard, etc.) and the company/payroll processor should have standard inputs to cap the deferrals at both the pre-tax limit (IRC402(g)) and/or the plan limit on deferrals if less than the Code limit (for example, 50% of compensation). Should there, by error, be an excess deferrals they can either be re-characterized as catch-up contributions (if applicable), after tax contributions (if the plan allows it) or returned to you less any applicable excise/withholding taxes. Which of these is done should be laid out in the plan. You can check your Summary Plan Description (SPD) for a description regarding excess deferrals and any corresponding excess matching contributions. Any corrections must be done by certain times (the time by which they are corrected will determine how much of an excise tax the company has to pay to the IRS for making the error).

Static Void

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Re: Went over 401k limit
« Reply #12 on: November 25, 2014, 11:44:30 PM »
Do you maxers calculate exactly

There's a school of thought that recommends contributing your entire first paychecks of the year to 401k. (Or however much you're allowed, my company allows 75%.) If you can manage the pinched cash-flow, it maximizes your time in the market.

Another hack -- Some companies do their 50% matching to whatever amount you contribute. A few years ago a changed jobs between two such companies, and I *did* calculate it to contribute my full its limit of 16500 (2011) split between two companies, but got the full match from each. All legal & legit.

Scandium

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Re: Went over 401k limit
« Reply #13 on: November 26, 2014, 07:18:04 AM »
I've yet to max my 401k but I've been wondering how the logistics of maxing out will work. Do you maxers calculate exactly how much percentage or dollar amount to contribute each month to hit 17500, or do you just contribute whatever amount and it stops getting funded automatically once the 17500 limit is hit?

I'm wondering the same thing, especially since I get a bonus in Q1 every year of varying amount (usually lower every year..). Would I have to tweak my contribution percentage at the end of the year every year to avoid going over? Seems annoying. I hope the company will block it once you hit the max, but I'll have to ask once I manage to max it out.

randersonnw

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Re: Went over 401k limit
« Reply #14 on: November 27, 2014, 11:50:55 PM »
I just entered our 401k and am now wondering, does the contribution limit include employer match? If I contribute 17,500 do I lose the match from my employer? Or does there amount not count towards the limit?

horsepoor

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Re: Went over 401k limit
« Reply #15 on: November 28, 2014, 12:04:51 AM »
$17,500 is your contribution limit, and does not count the employer match.  The limit in 2015 is $18,000

If you get an employer match, you'll probably lose out on that matching if you contribute too much and max out before your last paycheck of the year.

randersonnw

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Re: Went over 401k limit
« Reply #16 on: November 28, 2014, 09:52:08 AM »
Thank you. I am wrestling with the idea of maxing it out in 2015. I like the idea of being in at least 50% cash/highly liquid investments, which wouldn't be possible if I maxed my contribution,  but the tax implications are hard to ignore.

teen persuasion

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Re: Went over 401k limit
« Reply #17 on: November 28, 2014, 02:35:14 PM »
I talked to HR today and was told that the extra $76.68 was from my last paycheck in December 2013 and it didn't get into my account until 2014.  I was informed that it doesn't count toward 2014 because it was work done in 2013. We don't get paid until the first of the month, but the end of the pay period was Dec. 31. So it wasn't deposited until Jan 2014.  Seems odd Fidelity would show my yearly contributions above $17,500 but the explanation given makes sense.  I guess if something is wrong, I will find out at tax time. Thanks for everyone's help.
0

You should be good.  Employer took out $17500 during the calendar year, deposits to 401k were slightly delayed and added up differently.  Only the timing of the deductions from payroll count here, not the timing of deposits.  It would be nice if 401k provider reported deductions in the year AND deposits, but they are reporting the info they have.

Scandium

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Re: Went over 401k limit
« Reply #18 on: December 01, 2014, 09:32:06 AM »
Thank you. I am wrestling with the idea of maxing it out in 2015. I like the idea of being in at least 50% cash/highly liquid investments, which wouldn't be possible if I maxed my contribution,  but the tax implications are hard to ignore.

May I ask why?
If you need an emergency fund, yes fill that up first.  But if you're investing long term: max it out!

randersonnw

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Re: Went over 401k limit
« Reply #19 on: December 01, 2014, 04:08:02 PM »
Mostly because of fear, and the ability to take advantage of a crash should one happen. If there is a sale in stocks or real estate, or perhaps a business opportunity, I will need cash. If that money is in a 401k it is essentially locked up for a very long time. Opportunity cost is something that isn't considered enough I think. With that said, I am heavily leaning in the 'max it out' direction.