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Contributed too much to your 401(k)? What counts as an excess deferral, how a mid-year job change causes one, and what changes in 2026 for higher earners.
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Fixing a 401(k) excess before it is taxed twice
[ Have us check your deferrals ] Call (212) 641-0673 or send the contact form. Our team gets back to you within 24 hours, and we are available evenings and weekends. Confidential, and handled by a CPA or EA, not a call center.
What happens if you exceed the 401(k) limit depends on when you notice. Caught before April 15 of the following year, it is paperwork. Caught after, it is a permanent cost.
A 401(k) excess contribution can mean any of three failures, each with its own fix:
The IRS adjusts the limits for inflation, so the current figures are on our 401(k) contribution limits page.
The section 402(g) limit is yours, not your employer's: the IRS applies it to your total deferrals across every plan in the calendar year.
Each employer sees only what it deferred for you and stops you at the annual limit on its own payroll. Neither can see the other's total.
You end up over in three situations:
If you contributed too much to your 401(k) because two employers each stopped at the limit, the fix is a corrective distribution from one of the two plans.
Give your new employer's payroll team your year-to-date deferrals from your final pay stub, and set your election so your combined deferrals stay within the annual limit. Ask whether they can record a prior-employer figure in their system; if not, cap your election yourself.
April 15 of the year after the deferral. Correct an excess 401(k) contribution by then and the plan returns the excess to you, taxable once, in the year you deferred it.
On a timely corrective distribution:
Miss the deadline and the IRS taxes pre-tax money twice:
The 10% early distribution tax can apply to that later distribution as well.
The IRS offers no relief for the double taxation, because it is tax on income, not a penalty you can ask to have abated.
Example: two employers in 2025
Item | Amount |
|---|---|
Item | Amount |
Deferred at employer A, January to June 2025 | $14,000 |
Deferred at employer B, July to December 2025 | $13,000 |
Total deferred in 2025 | $27,000 |
Section 402(g) limit for 2025 | $23,500 |
Excess deferral | $3,500 |
Earnings on the excess to the distribution date | $210 |
What the same excess costs
Item | Corrected by April 15, 2026 | Not corrected |
|---|---|---|
Tax on the $3,500 excess, 2025 return | $840 | $840 |
Tax on the $210 earnings, 2026 return | $50 | Taxed when distributed, not in total |
Tax on the $3,500 again, when distributed | $0 | $840 |
10% early distribution tax on $3,500 | $0 | $350 |
Total | $890 | $2,030 |
Assumes a 24% federal rate in every year, no state tax, a distribution before age 59½ in the uncorrected case, and illustrative earnings of $210. Figures rounded to the dollar.
You send the request to the plan administrator, not to the IRS and not to us.
Where the administrator does not permit corrective distributions, or you missed its cut-off, the excess stays in the plan and the IRS taxes it twice. You cannot force it out, so ask the second plan's administrator before its cut-off passes.
You add the excess to your own return; do not wait for a corrected W-2. First check Box 1 of both W-2s: some employers already include the excess in wages, and adding it again on line 1h double-counts it.
If the excess lost value before the plan returned it, you still report the full excess for the year of the deferral and claim the loss on the return for the year of the distribution. In that case the plan sends one Form 1099-R, not two.
Example: 2025 excess corrected in March 2026
Item | Amount | Which return | Form the plan sends |
|---|---|---|---|
Item | Amount | Which return | Form the plan sends |
Excess deferral | $3,500 | 2025 Form 1040, line 1h | 2026 Form 1099-R, code P, sent January 2027 |
Earnings | $210 | 2026 Form 1040 | 2026 Form 1099-R, code 8, sent January 2027 |
No excise tax applies to a 401(k) excess deferral. The 6% annual excise tax applies to excess IRA contributions, not to 401(k) plans. The cost of an uncorrected 401(k) excess is double taxation, plus the 10% early distribution tax if the plan pays it out after April 15.
From 2026, anyone aged 50 or over must make catch-up contributions on a Roth basis if their prior-year FICA wages from the plan sponsor (Box 3 of the W-2) exceeded $150,000. That matters because of how the plan treats an overage: if you are catch-up eligible and exceed the deferral limit, the plan reclassifies the overage as a catch-up contribution and no excess arises.
Where the plan has no Roth feature, it cannot offer the required Roth catch-up. Because a plan must offer catch-up to every eligible participant or to none, it then offers none until the employer amends it. The administrator has nothing to reclassify the overage into, and it is an excess deferral needing a corrective distribution.
You correct a Roth 401(k) excess contribution the same way. Because you already paid tax on the money, the plan's return of the principal is not taxed again; the earnings are.
Ask your plan administrator whether the plan offers Roth before you assume the reclassification will save you.
Example: two 55-year-olds, $2,000 over the 2026 deferral limit
Fact | Plan A, offers Roth | Plan B, no Roth |
|---|---|---|
Fact | Plan A, offers Roth | Plan B, no Roth |
Prior-year FICA wages from the plan sponsor | $160,000 | $160,000 |
Catch-up allowed in 2026 | Roth only | None, for any participant |
Treatment of the $2,000 overage | Reclassified as Roth catch-up, no excess | Excess deferral of $2,000 |
Correction needed | None | Corrective distribution by April 15, 2027 |
The plan calculates the earnings attributable to the excess and distributes both together.
You pay tax on the earnings in the year the plan pays them, not the year of the deferral, so with a spring correction you report the excess on one year's return and the earnings on the next.
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[ Fix it before April 15 ] Send us both W-2s and your latest plan statements. We will work out whether you are over, by how much, and which plan should return it. Call (212) 641-0673 or send the contact form. No charge for the conversation.
Reviewed by George Dimov, CPA, New York, NY. Serving clients in all 50 states, 15+ years advising on retirement plan contributions, corrective distributions, and the returns that report them. President of George Dimov, CPA, a New York City firm serving clients across the five boroughs and nationwide.
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