Contributing to a 401k for previous years

[question123432]

My employer failed to contribute to my 401k for multiple years.  I had money taken out of my checks in 2024 (so they would match it) to make up for what should have been taken out all along.  I received my W2 with the amounts and corresponding years for those amounts, but there is no way to enter that on my tax form.  How can I specify the amounts are for different years? 

[DavidD66]

If I understand your question, your employer did not withhold 401(k) contributions from your pay in previous years.  In 2024, your employer did withhold 401(k) contributions.  The amount you had withheld in 2024 included the amounts that should have been withheld in previous years, but wasn't.  Your W-2 shows your 401(k) withholding by year on your W-2 and your employer made a matching contribution in 2024 for the current year and the previous years when nothing was withheld.  If that is correct, you don't need to do anything other than report the total amount of 401(k) withholding reported on your W-2.  There is no way, and no reason to identify it by the year it should have been withheld because it wasn't.  There won't be any problem as long as your total 401(k) withholding is not more than the contribution limit of $23,000 for 2024.  If you're age 50 or older, the additional $7,500 in catch-up contributions, would raise your employee deferral limit to $30,500.

[question123432]

Hi, sorry. Yes my employer failed to withhold my 401k for previous years. This was corrected this year. And yes the amount was over the limit. They itemized it correctly, say 8k for 2016, 8k for 2024, etc. So do I just enter the total amount that was withheld this year? Basically is there no way to say hey, this wasn’t all for 2024. 

[ThomasM125]

No, you can't apply the amount paid in 2024 to previous years even though it was your intention to make the contributions that way. You will have to report it all in 2024 and pay a penalty for over contributing if that is what happened. You can avoid the penalty however if you remove the excess contribution, including earnings, by April 15 of 2024. Your employer would have to issue you a corrected W-2 form as well if your contributions were deducted from your wages as is typical.

[question123432]

Ok thank you. Any idea how much the penalty is?

[Opus 17]

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@question123432 wrote:

Ok thank you. Any idea how much the penalty is?

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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. 

[question123432]

Thank you.  The numbers were just examples. But on the back of the w2 it mentions what you can do in these situations for service members. 
would making an amendment to those previous years returns do anything?

[DawnC]

Is this your situation related to the USERRA?  

Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) make-up amounts to a pension plan.

If an employee returned to your employment after military service and certain make-up amounts were contributed to a pension plan for a prior year(s) under the USERRA, report the prior-year contributions separately in box 12.   

See the TIP above Code D under Box 12—Codes. You may also report certain make-up amounts in box 14. See Box 14—Other in Specific Instructions for Form W-2.

[question123432]

Thank you. That’s not exactly the scenario but yes, very similar logic. My w2 has amounts listed for four different years with a year next to each one.  So it looks clear to them that x amount was for a particular year. 

[question123432]

After reading the section about box 14, I think that may apply. Thank you so much.