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

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 2013. It’s $17,500 for an individual. It’ll stay the same in 2014.

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 Remedy an Over-Contribution

According to the IRS, if you over-contribute to your 401(k) in 2013, you’ll have until April 15, 2014, to withdraw the excess amount. 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 2013, you’d have until April 15 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

In 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 basically is taxed twice. Even if you fail to withdraw that extra $1,000 from the above example by April 15, you’ll have to pay income taxes on it.

Plus, because that money wasn’t a legitimate contribution to your 401(k), you’ll have to pay taxes on it again when you withdraw it.

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 $17,500 401(k) contribution limit. So if your employer has a matching program, you can contribute your $17,500 plus the employers’ matching amount.

As long as your contributions from your own pay are $17,500 or less for 2013 and 2014, you don’t have to worry about any of this.

IRAs are Similar

If you have an IRA, you’re also subject to contribution limits – $5,500 (or $6,500 for those 50 and older) in 2013 and 2014. If you contribute more, you have until April 15 to remedy the situation.

Penalties are heftier, though, for IRA over-contributions. You’ll pay a 6 percent tax penalty on the money for each year it remains in your account.

If You Have More to Contribute

I suspect that part of the reason Jeff asked his question is that he has more than $17,500 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).

If you’d like to contribute much more than the $17,500 limit 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.

Published or Updated: December 16, 2013
About Abby Hayes

Abby is a freelance copywriter and blogger 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.


  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.

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