Since you maxed out your 403(b) at your new job, the leave conversion (reported as Code E in Box 12) likely pushed you over the IRS elective deferral limit. For 2026, that limit is generally $23,500 (or $31,000 if you are age 50 or older).
Here is how to handle this without getting hit by penalties.
1. The "Excess Deferral" Issue
- When you have two different employers, their payroll systems don't "talk" to each other. Employer A converted your leave, and Employer B took your per-paycheck contributions. Combined, you may have likely exceeded the annual limit.
- The Risk: If you don't correct this, the IRS technically taxes that "excess" amount twice:
- Once in the year you contributed it (because it shouldn't have been tax-deferred).
- Again, when you eventually withdraw it in retirement.
2. How to Fix It (The "Return of Excess")
- You need to contact one of your plan providers (usually the current one is easiest) and request a Return of Excess Deferral.
- The Deadline: You must request this and have the funds distributed to you by April 15th.
- What happens: The plan will send you a check for the overage plus any earnings (interest/growth) that money earned.
Tax Reporting: You will report that returned amount as "Wages" on your 1040 for the 2025 tax year (since it was 2025 income), even if you don't get the corrective 1099-R until next year.
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