401(k) contribution limits & job change: How to prevent over-contributing at new employer?

Question

My wife is changing jobs, and we are trying to figure out how to deal with her 401(k) contributions. She contributes the maximum allowed, and depends on her employer to stop deducting when the limit is reached. Obviously, her new employer won't know how much was contributed from the old job, so this won't work this year. I can think if three options:

1. Figure out what the remaining contribution is, and have exactly that amount be deducted by her new employer. This seems hard to get exactly right, especially if the deduction amount can only be specified as a percentage of the check. We also won't know the exact amount contributed from the old employer until after she starts at the new employer.

2. Somehow tell the new employer how much was contributed by her last employer, so they can stop deducting at the right time. I'm not sure if this is even possible.

3. Over contribute, and request money back. I'm not sure how this exactly works, but might be the most straightforward.

Are there other options? What's the recommended course of action in a situation like this? What would be the consequences of over-contributing?

Answer 1

First, contact the new employer's HR or payroll dept, whoever handles this. You might be able to warn them that your wife deposited x$ already. If they can tell their system to stop deposits at ($16500 - x$), that would work. If not, she will need to arrange to withdraw the excess, and pay the tax that wasn't withheld. No penalty, though.

Answer 2

Obviously, her new employer won't know how much was contributed from the old job, so this won't work this year.

Obviously the new employer would. They will not deposit anything, unless you tell them how much you have deposited already.

Somehow tell the new employer how much was contributed by her last employeer, so they can stop deducting at the right time. I'm not sure if this is even possible.

Why isn't it possible? I've been in a similar situation, the employer had a form to fill on this matter as part of the paperwork for the payroll, right between the direct deposit forms and the 401K contributions form.

By the way, another thing to take a look at when switching jobs is the Social Security tax. I wrote about it here.