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Are you putting too much money into your 401k account? Find out how this is possible and the best tool you can use to best manage your retirement and financial accounts.

Here’s interesting question from a reader named Jeff:

I know the IRS limit for 401k contributions. . . . 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 to be concerned about contributing more than the IRS limits in a given year.

Most of us won’t have to worry about contributing more than the annual 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 the contribution limits.

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 overcontribution mistake, the sooner you can fix the problem.

How to Manage Your 401k or IRA

Managing multiple 401(k) and IRA accounts is challenging, to say the lest. The best tool we’ve found for the job is called Personal Capital. It’s a totally free tool that enables you to connect all of your investment accounts in one place. From there you can manage your contributions, track performance, and even keep tabs on your 401(k) fees.

Personal Capital also offers a free Retirement Planner. This tool will show you if you are on track to retire on your terms.

You can analyze not only your 401(k), but also IRAs and taxable accounts.


If you only have a 401(k), you may also want to consider blooom. It’s the only dedicated robo-advisor for 401(k) accounts. With Blooom, you can get a free analysis of your retirement plan and for $10 a month, blooom will manage your 401(k). This includes finding and minimizing hidden fees, regularly adjusting your portfolio, expert financial help from blooom advisors and suspicious activity alerts to protect your account. blooom can work with any employer sponsored retirement plan and is currently the only robo-advisor available that specifically manages 401(k) accounts.

Related: Blooom Review

How to Fix an Overcontribution

According to the IRS, if you overcontribute 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’s 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 taken out is then included in your gross income for the year in which it was contributed to the 401k, according to the IRS. The interest earned on the amount that is withdrawn from the 401k, however, is taxable in the year in which it was taken out.

So, let’s say you accidentally contributed $500 over the limit between two employer plans in 2016. You’d have until April 15, 2017 to work with your plan administrators and withdraw the extra money plus any interest that money earned. The $500 will be included in your gross income for the year in which it was contributed to the 401k (which was 2016). The interest earned will be added to your taxable income for the year in which it was taken out–depending when you corrected the situation, this would either be 2016 or 2017.

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

Because of the slow-moving nature of some 401(k) plans, it’s important to get your overcontribution 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 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. Depending on how much you overcontributed, this could make for some hefty financial consequences.

Speaking of hefty money, TurboTax can save you hundreds of dollars and is easy to use, especially if you have a simple return and qualify for the free version. The software is updated every year with the latest tax laws and gives you personalized tips on how to save money. Even the most expensive version–which is well under $200–is still cheaper than hiring a CPA to file your taxes for you. Find out which version is best for you in our TurboTax Review.

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? According to Vanguard, you once again 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, according to Vanguard.

You’ll pay a 6% 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 part of the reason Jeff asked his question is that he would like to save more for retirement in a given year than just the contribution limit. In this case, it’s best to have multiple retirement plans. Be sure to follow the rules closely for each plan, though.

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 to your retirement accounts this year than the limits allow, talk with an investment professional. They will advise you 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 overcontribute, take steps now to fix the problem. There still may be time left to avoid a penalty.

Author Bio

Total Articles: 279
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.

Article comments

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.

Rob Berger says:

David, yes you can still contribute to a conventional IRA up to the limit. You may or may not be able to deduct that contribution, however. IRS Resources: http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

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.

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.

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 ?

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.

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!

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?

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.

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.

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.)

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/

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.

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?

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.

John says:

I switched jobs & overcontributed to 401k. Current employer has a better match, so does it matter which plan I take $ out of to get under the limit? Thanks in advance!

Rob Berger says:

John, great question. We’ve written about this in the past here, although we didn’t address your specific question. I’d suggest talking to the HR department. They should know the answer and be able to help you fix the problem.

MilitaryFIRE says:

One of the benefits, I suppose, of contributing to the Thrift Savings Plan, available to military etc, through a military members service run program. Internal algorithms make it impossible to over contribute, but also make it difficult to contribute exactly $18,000 over 24 payment cycles. I’ve been recommending people try to max their TSP by November 30, and use IRA’s to manage any other year end retirement contributions, in order to not miss the maximum tax deferred benefits.

Treller says:

Oh a related topic, we actually contributed to an FSA the full amount allowed of $5000 and used the $5000 FSA dollars so the FSA is fully consumed, however as I am a stay at home Dad I did not have any earned income so have since discovered we do not qualify for an FSA. Does anybody know if I need to do something at this point or will I just have to pay the tax back in April, will I also incurr a fine/penalty?

James B. says:

I respectfully disagree with the information within this article.
I recently retired with 28k( there over a 28+ year time frame ) in after tax money in my 401k( total balance north of $ 1M. On January 03, I took a 50k distribution. 17k of the 28k was my contribution ( 11k reflected appreciation ). Fidelity sent me a check for 17k ( no 20% withholding ) and 26.4K ( the 33k was subject to 20% withholding ). There was never a 6% penalty during the time my after tax money was in this account.

Michele Cooper says:

Thanks for the great article..!!
I think it’s very important to withdraw over contribution by the tax deadline so that you can avoid penalty from the IRS. Make sure you discuss everything with a tax adviser and your 401K administrator before taking any decision.

Ron says:

I’m 61 and took out 25K from my Roth IRA less than 60 days ago. Am I able to replace that 25K back into that same IRA account?

Stephanie Colestock says:


If the recontribution falls within the 60 day window, you are able to classify it as a “rollover” and put the money back (you are allowed one rollover in a 12 month period). Outside of 60 days, though, any money put back is considered a contribution and is subject to annual contribution limits and penalties. If you’re going to do a rollover and put the 25k back, you may want to work alongside a CPA to ensure that it’s done properly to avoid penalties and taxes — the IRS has cracked down on these sorts of things in recent years.

[email protected]

Chris says:


I filed married over 50 with an AGI under 189,000 can I max my 401k @ 24,000 and contribute to 6,500 a Roth for a combined $30,500?


Rob says:

Can I select the return contributions over the IRS limit, that are most tax beneficial?
i.e. if over contributions are $6,000, and I select investments that lost $6,000 instead of the ones that gained, won’t my losses off-set the taxable distribution OR the net distribution be $0?

Brian says:

I have my contributions broken up into a traditional 401k and a roth. I am single and under 50 and over paid on both in 2017. With the limit being $5500, I over contributed by $7433.05. In order to correct this should I return the majority from the traditional or the roth? I am going to have to return some from both since i contributed $6035 on one and $6897 on the other.

Ripu says:


When filling as married can i contribute to my account more than 17K say 20K and my wife contributes 15K but we still get deduction for 35K when filing together? Thanks!

Sam says:

I understand that employer contributions do not count towards the total contribution limit, can you confirm this applies to all employer contributions whether those contributions come from a matching contribution or if the contribution comes from bonus pay or profit sharing contribution.


Marianne says:

Does it matter from which 401k plan you withdraw? Let’s say you switch jobs halfway through the year and end up overcontributing, but your new employer has a better 401k plan. Can you opt to have the old plan’s contributions distributed instead?

Manoj says:

Did you figure out if you can choose which employer to distribute. What if former employer says over contribution did not happen in this company

Garrett Gitchell says:

We had too much put into a 403b. We also have a 457 (administered by the same company). Is it possible to move the overage from the 403b to the 457? We want to make sure we max out both. (I am a little surprised the company that manages the deposits did not have an automatic flag for this. Education somehow picks the absolute worst suppliers…).

Matthew says:

My employer matches 37% of my Roth/401k contributions and I have overpayed my Roth. I am wondering if it is still beneficial to just overcontribute and pay the penalties since the match from my company is so high. I don’t want to stop taking advantage of the company match unless it is not legal.

Karen says:

I am employee with federal benefits. I looked on my pay stub and saw that there was a negative sign next to my year to date retirement and for the last 2 pay periods they have been contributing $11.56 towards my retirement. I make close to $980 every two weeks, When I questioned my employer, they told me that they had been taken too much money from my retirement each pay period. When they discovered they sent me a check to in a lump sum, and before they cut the check took the taxes. I am still employed. Should they have told me before they did this and allowed me to roll it over? What options do I have to continue saving this money for retirement. I was thinking about opening a high yield savings account and taking the same amount that they were taking and depositing into the account. Please help.

ewcollins says:

In 2018 I contributed $925 to a Roth 457 and $23,900 to a traditional 457 for a total of $24,825. This is over my $24,500 limit for 2018. What must I do to correct my error?

John says:

Once I file the Return of Excess Contribution form HOW do I report the money in the year of contribution? Will the employer issue a new W2? Will the mutual fund company issue a 1099 for 2018? Or what? My employer’s HR dept just had half its staff laid off and they don’t know which end is up. The Fidelity rep said I should report the excess contribution return on my 2019 taxes, which I’m pretty sure is wrong. The H&R block woman said she’d never heard of excess contributions.

Joseph Fay says:

I diligently upped my 401k contribution to 10% this year, (with a 3%+3% match from my employer). I calculated though at this rate, I’ll reach the $19k limit in September. So I’ve reduced my contribution to 6% to still get the full match, but even at that rate, I’ll still max out too soon. I’m told by my plan administrator that I’ll still get the first 3% match and that payroll (ADP) won’t allow me to over contribute……but am I entitled to ask for the the other 3% match (even though my contributions will need to stop before the end of the year?)