What If You Over-Contribute to a 401(k) or IRA?

We recently got this interesting question from a reader named Jeff:

I know the IRS limit for 401k contributions is currently $17.5k / yr. What I want to know is what actually happens if I contribute more than that, say $20k? Do I get a stiff penalty?  Do I go to 401k jail?  Is this handled like a Roth IRA?

Jeff is right about the 401(k) contribution limit for 2014. It’s $17,500 for an individual. It’ll jump to $18,000 in 2015.

Over-contribute to 401(k)

Most of us won’t have to worry about contributing more than that $17,500 limit. Even if you have enough money available to over-contribute to a 401(k), your plan administrator will likely keep you from contributing too much in one year.

This is a slightly more common problem, though, if you switch jobs during the year, or if you work two jobs and have a 401(k) with both. In this case, you’ve got to be extra careful that you work with plan administrators to ensure that your total 401(k) plan contributions for the year don’t exceed $17,500 (plus $5,500 for catch-up contributions if you are 50 or older).

Besides communicating with your employer if you’re in one of these situations, the best thing you can do is to stay on top of your 401(k) contributions. The sooner you notice an over-contribution mistake, the sooner you can fix the problem.

How to Fix an Over-Contribution

According to the IRS, if you over-contribute to your 401(k), you’ll have until April 15 of the next year to correct the problem. The IRS advises that employees should contact their plan administrator to fix the problem:

the employee should notify the plan and ask that the difference (called an excess deferral) be paid out of any of the plans that permit these distributions. The plan must then pay the employee that amount by April 15 of the following year (or an earlier date specified in the plan).

The excess amount (plus any interest earned on that amount) will be added to your gross income for the year and will be taxed accordingly.

So if you accidentally contributed $18,500 between two employer plans in 2014, you’d have until April 15 to work with your plan administrator to withdraw the extra $1,000 plus any interest that money earned. The interest earned will be added to your taxable income for the year.

It doesn’t matter how much you contribute over the limit. The same rules apply. It’s just that the more you over-contribute, the bigger your tax bill will be.

Because of the slow-moving nature of some 401(k) plans, it’s important to get your over-contribution correction in gear as soon as possible. It’s best if you initiate the withdrawal by March 1.

This means that you need to stay on top of your contributions for the previous year. Check them in January or February, just to ensure that you don’t miss any over-contributions.

Consequences After April 15

over-contribute to 401kIn many cases, individuals don’t notice that they’ve over-contributed to a 401(k) plan. So what happens if you contribute too much but don’t notice it before April 15?

In this case, the excess contribution is effectively taxed twice. You’ll pay tax on the excess in the year it was contributed to the 401k (even though it wasn’t taken out). You’ll also pay tax on the amount once it is withdrawn from the retirement account. Here’s the explanation from the IRS:

Excess not withdrawn by April 15. If the employee does not take out the excess deferral by April 15, the excess, though taxable in the year of deferral, is not included in the employee’s cost basis in figuring the taxable amount of any eventual benefits or distributions under the plan. In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Also, if the entire deferral is allowed to stay in the plan, the plan may not be a qualified plan.

Double-taxation is never a good thing, and depending on how much you over-contributed, this could make for some hefty financial consequences.

Employer Contributions Don’t Count

One thing to note here is that employer contributions do not count against your 401(k) contribution limit. So if your employer has a matching program, you can contribute up to your 401k limit plus the employers’ matching amount.

IRAs are Similar

If you have an IRA, you’re also subject to contribution limits that can change from year to year. If you contribute more, you have until April 15 to remedy the situation. According to Vanguard, you can simply withdraw the excess contributions and their earnings before tax-filing deadline.

But what if you discover the problem after you file your return? Once again according to Vanguard you have one of two options:

  • Remove the excess within 6 months and file an amended return by October 15; or
  • Reduce next year’s contributions by the amount of the excess. For example, if your limit is $5,500 and you exceed it by $1,500 in the current year, you can offset the excess by limiting your contributions to $4,000 the following year.

Note: If you choose the “carry forward” option, you’ll have to pay a 6% penalty tax until the excess is absorbed or corrected.

Also, if you contributed to both a Roth and traditional IRA in the same year and combined exceeded your contribution limit, the IRS requires you to remove the excess from the Roth IRA first.

You’ll pay a 6 percent tax penalty on the money for each year it remains in your account, so you’ll want to get any excess contributions fixed immediately.

Related: Current IRA Contribution Limits by Year

If You Have More to Contribute

I suspect that part of the reason Jeff asked his question is that he has more than his contribution limit he’d like to save for retirement in a given year. In this case, it’s best to have multiple retirement plans, but to follow the rules closely for each plan. For example, you might max out your 401k and open a tax deductible or Roth IRA (assuming your income doesn’t disqualify you). He might also consider a high deductible health insurance plan that qualifies for a Health Spending Account. HSAs can be a great way to save for retirement.

Related: How an HSA can help you save for retirement

Final Thoughts

If you’d like to contribute much more than the limits allow to your retirement accounts this year, talk with an investment professional about how best to allocate your money. You’ll want to get the most bang for your buck – without running awry of the IRS. And if you did accidentally over contribute, take steps now to fix the problem. There still may be time left to avoid a penalty.

Published or Updated: December 15, 2015
About Abby Hayes

Abby is a freelance journalist who writes on everything from personal finance to health and wellness. She spends her spare time bargain hunting and meal planning for her family of three. She has a B.A. in English Literature from Indiana University–Purdue University Indianapolis, and lives with her husband and children in Indianapolis.


  1. David says:

    My 401k is maxed out for the year at 17,500 + 5,500. Can I also contribute a total of 6,500 to a conventional IRA with after-tax money? I’m over 50.

  2. Jim says:

    If you are over a certain age (50?) can’t you have the extra put in a “catch up” account?

    • Rob Berger says:

      Jim, not sure what you mean by a “catch up” account. If you are 50 or older, your 401k and deductible IRA limits are higher, but I don’t believe the “catch up” portion of the contribution is put into a different account.

  3. Cathy says:

    What happens if an employer’s match is more than what is allowed? How is the employer match refunded back to the employer, and what are the steps necessary to notify the 401K provider?

    • Rob Berger says:

      Cathy, the employer match is not counted toward the contribution limit.

  4. Ron says:

    Husband 70 retired, wife 68 with plan to work through 72. Have old Retirement account original $5g now $7.5 in CD at .045-. Old retirement Stock account original $3.5g and now $5.5. Employer retirement account vested $8.5g that was participating and employer part disappearing with $1.5 annual contributions. Savings of around $10g at S & L.
    Current annual income (all) $52g + and recent Inheritance of $30g. Stock and Employer funds showing fair growth, residence paid off ($125g) . Question is there major value in putting the max into current accounts and then the 2013 makeup and stop or do some transferring or opening of a Roth account with the CD, savings and Inheritance ? All income is being reinvested (CD AND Stocks). How would you proceed ?

  5. James says:

    Can I contribute maximum of $17,500 to each of three accounts with 401K, 403B and 457B in same year? The rules weren’t clear if $17,500 is maximum per year or per account. Please explain. Thanks.

  6. Jingwang Zhang says:

    I know there is 10% penalty if you withdraw from your 401K, Will this 10% penalty be applied when I withdraw the over-contribution? Thanks!

  7. Randy says:

    I’m a bit confused. I understand that if excess contributions are made to a traditional 401(k) account, the contributor has until April 15th to withdraw the excess funds or a tax penalty will be imposed by the IRS. But I don’t understand what is meant by: “you’ll have to pay taxes on it again when you withdraw it” because contributions to a traditional 401(k) account are pre-tax to begin with, so I don’t understand the requirement to pay taxes on the money “again.”

    Also, if the excess contributions are made to a Roth 401(k) account and there was not any interest accumulated on the funds and the error is discovered after April 15th, what happens? Can the excess simply be withdrawn from the account without penalty since it wasn’t claimed as a tax deduction on the year’s income taxes?

  8. Sanjay says:

    I switched jobs in 2014 so ended up with a 401K deduction of $1000 more than the allowable limit. I didnt notice it until I was filing taxes this year. My tax consultant told me to add $1000 as the income (line 7) of 1040. Do I have to withdraw this $1000 from my 401(K) account before April 15, 2015? or shall I just leave it in there?

    Thanks for the help

    • Rob Berger says:

      Sanjay, your tax consultant should be able to answer your question. I believe you’ll need to withdraw the $1,000 plus any earnings generated by that $1,000. But I’d confirm this with your tax consultant.

  9. Mitchel Young says:

    I opened an IRA in 2011, but my total retirement contributions exceeded my limit so the IRA ended up being taxed. However when I pulled out the money in December 2015 (I am over 60 years old) I understood the bank to say the distribution would be taxable. I think I need a special form to indicate the amount was already taxed in 2011 and should not be taxed in 2015. Do you know what form to use? Thank you.

  10. Glen says:

    When there is an over-contribution in the pre-tax 401k amount, I don’t understand why “the plan must then pay the employee” the excess. Why can’t the excess be moved from the pre-tax portion of the employee’s 401k account into the after-tax portion of the employee’s 401k account? (I’m assuming the overall 401k limit of $53,000 isn’t also maxed out, but the overall limit is so much higher than the $18,000 pre-tax limit that for most people it is extremely unlikely for the overall limit to be maxed out.)

  11. peter l says:

    I am a small biz owner – just my wife and I. I made contributions to our 401 k both employer and employee. Due to some tax planning revisions I now have excess contributions to the employers side which I would like to withdraw. Our corporate returns DO NOT reflect this excess so we are not trying to take any unfair tax advantage on this, simple looking to withdraw the excess contribution. I am told by the plan admin that the IRS is unclear on how to handle this and that I should file a 5330 form and pay a 10% penalty as well. This does not seem fair. any thoughts on this would be greatly appreciated.

    • Rob Berger says:

      Peter, I would talk to the company that administers your 401k. They should be able to help you deal with this.

      • peter l says:

        Thanks Rob… Its just a 2 person plan run thru Fidelity. The folks at Fidelity– administrators say I should file a 5330 form and pay 10% penalty on the excess contribution. I am not claiming the excess contribution on the return so I have not tax advantage. The IRS says that if an employee over contributes– they can pull the amount out by April 15 to correct but what about the employer? I am afraid the plan admin is not much help/

  12. Andrew says:

    Hello, hope you can advise. This year going through my taxes I noticed that I over contributed $5500 to my Roth IRA in tax year 2014. Basically I contributed and got married in 2014, but my wife an I filed as married but filing separate, and I did not know that I’m allow to contribute to a Roth IRA if I file married and file separate and have income over 10K. In 2015 I contributed another $5500, again unaware during the year, however now that I noticed it I called my IRA custodian, and asked them to do the backdoor roth for the 2015 contribution, and return my 2014 contribution as the time for anything has expired. What do I have to do with my taxes? Do I have to amend my 2014 taxes stating that I over contributed? Do I need to amend or just file a 2014 5329 by itself? Also what do I do for my 2015 taxes, do I file them without any penalties and then amend it after fixing the 2014 return. Really confused how to fix all this.
    Or is it easier, If I don’t do anything, since I have removed all excess contributions should I just wait for a tax bill and the 6% penalty? Thanks,

    • Rob Berger says:

      Andrew, I’d suggest consulting a tax professional or the firm that handles your IRA.

  13. Kyle says:

    in 2014 I rolled over 2- 403B retirement account to an IRA. I got penalized for over contribution. IN looking a the IRS website rollovers should not be hold a penalty. I got dinged again in 2015. Can I amend the returns to recoup this over contribution penalty or am I stuck?

  14. Dave says:

    My earnings are $50,000. I contributed $7500 to 401k (15%). I am over 50. Can I contribute the additional $6000 catch up allowed in 2016, or am I limited to 15% of earnings and can only have a catch up if 15% of earnings exceeds $18,000?

    • Rob Berger says:

      Dave, I’ve never heard of a 15% limit to 401k contributions. But your employer and 401k administrator should be able to confirm for you your contribution limits.

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