@question123432 wrote:
Ok thank you. Any idea how much the penalty is?
There is no legal way to do what you and your employer are trying to do, sorry. Your contributions for 2024 are governed by 2024 rules and limits, no matter what happened before.
Also, your contributions are only reported on your W-2 and never anywhere else.
Your maximum salary deferral for 2024 is $23,000, or $30,500 if you are age 50 or older. The maximum combined total of employee plus employer contributions is $70,000. Your employer could (maybe) help correct the mistake by contributing a larger employer share (free money to you), up to the combined limit of $70,000, but you can't contribute (deferred salary) more than $23,000 or $30,500.
$7000 or $8000 is the limit for an IRA. IRAs are NOT 401(k)s even though they have the same basic purpose. They are controlled by different laws, have different limits, and you never report a 401(k) contribution as if it was an IRA. They are totally separate.
If you contributed (deferred) more than that, this is what happens:
1. You must add the excess back to your taxable income and pay income tax on it.
2a. You may remove the excess contribution (that is now taxed) before April 15. If you do that, it becomes your money with no restrictions, just like any other money in your pocket after paying tax on it. You can invest it in a regular investment, or contribute to an IRA or Roth IRA (depending on your income and other information), or put it under your pillow.
2b. If you don't remove the excess contribution, it will stay in the 401k and grow with your other investments until you retire. You will pay tax on the entire 401k when you withdraw it, even the excess contribution that you paid tax on this year. So the "penalty" is that you pay income tax on the excess deferral this year, and if you leave the money in the account, you will pay tax again when you withdraw it in retirement.
