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Suppose that I change jobs halfway through the year.

  • My first employer matches 50% of 401k contributions. By the time I leave, I've already contributed enough to hit IRS limits: $18,000 in my contributions with $9,000 matching.
  • My second employer also matches 50%. They allow me to contribute another $18,000 with another $9,000 matching.

All contributions and matching vest immediately. I withdraw the $18,000 from my second employer to avoid the 401k over-contribution penalty. What happens to the second $9,000 matching contribution?

  • 2
    Are you on a vesting schedule with your first company? – Michael Jan 9 '17 at 18:03
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    There's a paper-trail for EVERYTHING you've just described. If both employers report to the IRS (hint: yes, they both do) then you will have to answer to the IRS at some point. Probably not fun if they suspect you're trying to pull a fast one. – MonkeyZeus Jan 9 '17 at 19:22
  • @MichaelC. edited to reflect that contributions vest immediately. – Andrew Mao Jan 9 '17 at 22:02
  • @MonkeyZeus Since employer matches are not part of IRS contribution limits (total limit is $53,000), and I'd be adhering to the personal limit of $18,000, I'm not sure why this would be a fast one. – Andrew Mao Jan 9 '17 at 22:05
  • @AndrewMao Another question, when you say "withdraw" do you mean rollover? – Michael Jan 9 '17 at 22:10
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The first employer matching contribution gets taken back. You don't want to mess around with over contributions like this. In addition to withdrawing over contributions, they withdraw some portion of investment gains. The accounting gets complicated so best to avoid the issue.

  • Thanks for the info. Can you link to a reliable source explaining how this matching contribution would be taken back? – Andrew Mao Jan 10 '17 at 21:23
  • Personal experience. I used to work at Amazon and always contributed the maximum to my 401k. A completely different complicated aspect of 401k's made it such that I was not allowed to even contribute to the maximum (see link). At the end of each tax year, I was required to withdraw a portion of my contributions and I also lost part of the matching. – gaefan Jan 10 '17 at 22:44
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If job2 has a match greater than 2x the tax penalty due, I'd recommend max contribute to second job, get the match and pay the tax penalty (actually doesn't even have to be 2x, depending upon investment growth). The penalty for over contributions is you'll be taxed twice. The initial contribution (excess deferral amount) is taxed at current year's rate then also taxed upon withdrawal in retirement at then future year's tax rate. Therefore, max out the match, pay a tax penalty and get more money in your 401k.

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