Everyone knows that April 15, 2025, is the deadline for filing 2024 income tax returns. But April 15 is also a crucial deadline if you made too many 401(k) deferrals in 2024. If you don’t fix the error by that date, the tax consequences are serious. Having a tax filing extension for 2024 does NOT give you more time.
The maximum amount of pre-tax and Roth contributions you could make for 2024 was $23,000 (plus another $7,500 more if you were least age 50). Many people are unaware that contributions you make to ALL plans during the year are usually combined when applying that limit. (That aggregation rule doesn’t apply if one of your plans is a 457(b) plan.)
If you were in only one plan during 2024, your plan should have had internal controls to block you from exceeding the deferral limit. If the plan mistakenly allowed you to overcontribute, it’s up to the plan to fix the problem.
But that’s not the case if you were in two different plans during the year (because you had two jobs at the same time or changed jobs). That makes sense because one plan could not be expected to know how much you contributed to the other plan. So, the burden is on you to keep track. Your Form W-2 from each employer indicates the amount of pre-tax and Roth contributions in Box 12. Or, you can check your plan account statements.
If you’ve overcontributed, you must contact the administrator of one of the plans immediately and make them aware of the problem. To avoid double taxation (see below), the error must be corrected by April 15, 2025.
The plan you contact should fix the error by making a “corrective distribution” to you. A corrective distribution is the excess over the $23,000/$30,500 limit, adjusted for earnings or losses attributable to the excess. You’ll receive a corrected W-2 that adds back the excess deferrals to your 2024 taxable income. (If you’ve already filed your 2024 tax return, you’ll need to amend it.) Earnings on the excess are taxable to you in 2025.
Example: Liang, age 48, made $18,000 of 2024 pre-tax contributions to Company A’s 401(k) plan before leaving to work for Company B. Liang didn’t keep track of his total 2024 contributions and made another $12,500 of pre-tax contributions to Company B’s 401(k) – for a total 2024 contribution of $30,500. He exceeded the 2024 deferral limit by $7,500 ($30,500 – $23,000). The excess deferrals earned $700. Liang became aware of this problem in early 2025 and contacted Company B. On March 31, 2025, Company B’s 401(k) makes a corrective distribution of $8,200 ($7,500 + $700) to him. Company B also sends Liang a corrected 2024 W-2 showing an additional $7,500 of 2024 taxable income. He must include the $700 of earnings as taxable income for 2025.
Why is it so important to have this fixed by April 15? Because if the error isn’t corrected by that date, you’ll be hit with double taxation. The excess deferrals won’t be paid to you, but they’ll still count as 2024 taxable income. And the excess, along with related earnings, will be taxable to you a second time in the year they are eventually distributed to you.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.
Avoid Double Trouble by Fixing 2024 Excess 401(k) Deferrals by April 15
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
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