Suppose the following:

  1. Contribute $50,000 to pre-tax 401k
  2. 401k grows by 5%
  3. 401k is rolled over to traditional IRA

What is the proper course of action to return the excess 401k contribution? What forms need to be filed? What important deadlines (calendar year, filing date, etc.) are there?

  • Is it too late once the rollover happens? In this case is the excess contribution penalized in perpetuity?
  • Can the same process/calculation used to return the contribution be executed in the IRA (withdraw excess + earnings on excess). In this case, how would 1099-R be handled, especially given the distribution code may be incorrect

1 Answer 1

  1. Contribute $50,000 to pre-tax 401k

If this is done in one year, it should never happen. Every 401(k) administrator I have used for decades has prevented this from happening. They will not allow you to put more into the system then the law allows.

The only exception is when you changed jobs or had more than one job in that year. In those cases they don't have the whole picture so they wouldn't be able to block any further contributions before you hit the yearly maximum.

For example if you are under 50, then the 2021 limit is $19,500. If you did $15,000 in 401(k) pre-tax and/or Roth contributions at your job, then you quit and joined another company. The new company would let you put in an additional $19,500 because they didn't know about the other 401(k).

  • 1
    Correct, but hypothetically what happens? I'm trying to keep the problem simple, but in this framing: contribute 19k at employer A, rollover to IRA when you leave, contribute 19k to employer B, also leave and rollover to IRA, then what? Is it reversible at that point?
    – arcyqwerty
    Commented Jun 25, 2021 at 20:14

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