401k exceeding 2005 yr limit?

[abc]

am i on my own in watching the reaching of the fed. limit?

scenario. Jan to March, contributed say 6k to 401k.
March to present = new job/company... new plan (still fidelity though)

I think I've already contributed 6k to this new plan.


for 2005, i think i already socked away 12k.

from present to dec., I'm going to shoot past the limit of 14k.


far as i can say, i might have 12k at the end of the year at my present plan...


so 6k + 12k = 18k.


Would my 401k administrator stop extracting from my paycheck automatically when i hit about 8k... because i have 6k from the other company, from Jan to March, as I outlined before? I don't guess so... even though it's still fidelity, it's not their business to track for you.


Anyway, what happens to excess contributions, when do they get addressed?

 

[TriStar]

You will have to pay income tax on the excess.

 

[DaveSimmons]

> Anyway, what happens to excess contributions, when do they get addressed?

I haven't had to deal with that one yet, but you're probably right about the new employer not knowing how much you've contributed. You should talk to your office staff (HR?) ASAP.

If you're not going to make too much to qualify for a Roth IRA (go to IRS.gov if you don't have last year's 1040 booklet), you should do that next. It's after-tax, but the $6K you were going to put into the 401k should cover a $4K Roth.

 

[Engineer]

Originally posted by: abc
am i on my own in watching the reaching of the fed. limit?

scenario. Jan to March, contributed say 6k to 401k.
March to present = new job/company... new plan (still fidelity though)

I think I've already contributed 6k to this new plan.


for 2005, i think i already socked away 12k.

from present to dec., I'm going to shoot past the limit of 14k.


far as i can say, i might have 12k at the end of the year at my present plan...


so 6k + 12k = 18k.


Would my 401k administrator stop extracting from my paycheck automatically when i hit about 8k... because i have 6k from the other company, from Jan to March, as I outlined before? I don't guess so... even though it's still fidelity, it's not their business to track for you.


Anyway, what happens to excess contributions, when do they get addressed?

Unless your employer knows about the limit, I doubt that they would stop your contributions.

One thing to consider is if your employer (current) is matching your contributions, then you would be best fit (unless your employer takes care of this) to stretch "your" contributions out to the very end of the year. When you max out early, most employers stop giving a match because you make no more contributions.

Example:

Company A matches 50% of employee's contribution up to 6% (3% company match). Employee A gives 6% and recieves 3% from January to December.

Employee B gives 15% and received 3% (max match) but maxes out in September. The company will not give the 3% match after September because the employee B is not contributing. He/she would have been better to lower his/her contribution percentage to take advantage of the match for the full year. I have seen this happen to friends of mine that have moved to high paying jobs and maxed their 401k out too quickly.

P.S. 401k limits next year go to 15,000 and then adjust by $500 increments based on inflation in 2008.

 

[abc]

Originally posted by: DaveSimmons
>

If you're not going to make too much to qualify for a Roth IRA (go to IRS.gov if you don't have last year's 1040 booklet), you should do that next. It's after-tax, but the $6K you were going to put into the 401k should cover a $4K Roth.

The roth for me, i've made decision on it for 2002, 2003 and 2004 irrespective of whether I capped my 401k... I hadn't in each of the past three.. yet I did contribute into a ROTH, even though it gave me no deduction during each respective tax yr.

 

[abc]

Originally posted by: DaveSimmons
> Anyway, what happens to excess contributions, when do they get addressed?

I haven't had to deal with that one yet, but you're probably right about the new employer not knowing how much you've contributed. You should talk to your office staff (HR?) ASAP.

hmm, to have what done for me? The best they can do is identify my 'cutoff' point, on which future paycheck would they start to stop collecting money out of my paycheck for depositing into my 401k.... which might happen in October. This leaves Nov and December, or about 4 paychecks where ZERO of it would go into my 401K.

I was thinking, if there is no harm, I'd just 'blindly' allow myself to overcontribute on my 401k, and rectify everything during tax filing at the beginning of 2006.

Isn't there a line on the 1040 form for 'excess' contributions?

 

[abc]

uh oh, just caught some good info I think, from turbotax:

What to do if you too much money is mistakenly put into your 401(k) plan.

What happens if you inadvertently put too much money into 401(k) plans? And, how can you find yourself in such a situation?

To begin with, this can happen if, for example, you change jobs mid-year and you forget to tell your new employer that you have made contributions to your old employer's plan. The maximum contribution you can make in 2004 is $13,000, for all 401(k) plans you might contribute to. So changing jobs can cause extra withdrawals if you're already close to that limit.

If you find that you've mistakenly contributed more than $13,000, notify the plan administrator for your current employer's plan as soon as you can. The plan administrator will refund the money to you before April 15th of the following year. This refund is called a "distribution".

Funds you contribute to a 401(k) plan aren't taxed. As a result, you'll have to pay taxes on this distribution in the year you receive the money (on your original contribution as well as any earnings on that money for the time it was in the plan).

What happens if the plan administrator, for whatever reason, doesn't distribute this excess contribution to you? It'll be taxed to you anyway, even though you didn't get the money. Then, when you ultimately take the money out of your plan during your retirement, you'll pay taxes on it again.

 

[abc]

hmm looks like it's in my best interest to advise Fidelity about my situation just in case they don't know it... because any excess I have put in will come back to me as a distribution? like early withdrawal??? I'm not retirement age, I'd suffer penalties I'd say.

 

[Engineer]

Originally posted by: abc
hmm looks like it's in my best interest to advise Fidelity about my situation just in case they don't know it... because any excess I have put in will come back to me as a distribution? like early withdrawal??? I'm not retirement age, I'd suffer penalties I'd say.

No, you won't suffer penalties but you will pay taxes on the money. My manager has had that happen before. Simply paid taxes and moved on.

 

[abc]

wait a second... what excess you put into the 401k, for which must be taken back out comes out as a distribution no?

and if you are under 59.5yrs old when you do a distribution, you pay 10% fed. penalty.... isn't that right... on top of taxes since you had hidden it from being taxable.

 

[abc]

say, what if i maxed out already... should i continue to allow paycheck deductions to still occur all the way up to end of dec 05?

 

[EagleKeeper]

Originally posted by: abc
say, what if i maxed out already... should i continue to allow paycheck deductions to still occur all the way up to end of dec 05?

It will not be of any benefit to you unless you are getting matching funds.

If you overfund and you get an adjustment next year, I donot know if the employer will back out the matching funds.

 

[abc]

Originally posted by: EagleKeeper

Originally posted by: abc
say, what if i maxed out already... should i continue to allow paycheck deductions to still occur all the way up to end of dec 05?

It will not be of any benefit to you unless you are getting matching funds.

If you overfund and you get an adjustment next year, I donot know if the employer will back out the matching funds.

i wondered that too, but there are cases where there is no worry because
(no matching taking place)

i guess indeed, no benefit... since getting it swept out of your paycheck just to make it untaxable while at the same time it's not in your wallet for use sitting in your 401k instead (unless it is a plus if the 401k is invested real well ... and it will be taxed anyway when you mention finally that you had over contributed...

unless how about putting it still so as to block against your annual income bumping to the next higher tax bracket... I guess this doesn't work because again, once you rectify the over-contribution
issue and get a check, your 'final' 2005 taxable income gets appended accordingly.