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What Happens if You Overfund Your 401(k) or 403(b)?

The 401(k) and 403(b) limit is per person and not per job.

Some individuals with multiple jobs during a year may exceed the 401(k) and 403(b) limit. Some individuals with one job may exceed the 401(k) and 403(b) limit if their company’s payroll and/or plan administrator do not correctly program in the yearly limits.

Keep in mind the annual $18,500 limit (for 2018) is based on all combined 401(k) and 403(b) contributions you make (including Roth contributions).

Unless timely distributed by April 15 following the year of deferral, excess deferrals (including earnings) are (1) included in income for the year contributed, and (2) taxed a second time when the deferrals are ultimately distributed from the plan. If this occurs, you basically are double-taxed if the overfunding isn’t corrected by April 15.

For example, excess deferrals made during 2018 must be distributed by April 15, 2019. This April 15th deadline is not postponed by extending the filing of the employee's federal income tax return.

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Richard Pon CPA, CFP