topic Contributing too much to Roth 401k in Retirement tax questions

Contributing too much to Roth 401k

joeyfoster10 — Mon, 10 Feb 2025 22:03:35 GMT

Good afternoon,

I had a question about Roth 401k's and tax implications as this is my first time having a 401k and I don't fully understand what can and cannot be done with them.

In 2024, I contributed $9,250.58 to a Roth 401k not knowing that there are limits on how much can be contributed and when I started filing my taxes, I discovered that I was being penalized for having contributed too much. I did some research and called my financial institution to see if they could recharacterize the $2,250.58 (plus interest) into a traditional 401k so as to avoid any tax penalty for 2024 as I saw most websites suggest. I had not contributed anything toward a traditional 401k for the year. The financial institution told me that I could not transfer any funds and that I would need to contact a tax advisor. Just trying to figure out what I can do on this front to avoid the penalty. Any help or advice would be much appreciated!

Re: Contributing too much to Roth 401k

MindyB — Mon, 10 Feb 2025 22:17:33 GMT

To be clear, a Roth IRA and a Roth 401(k) are two different retirement vehicles. Whether Roth or traditional, a 401(k) and an IRA each have different maximums. ‌For 2024, the 401(k) limit was $23,000, and for an IRA it was $7,000 for individuals under 50 years of age. Often, individuals contribute to a 401(k) through their workplace via payroll deduction, and on their own to an IRA via a brokerage.‌ If you used the same brokerage for your IRA, the brokerage wouldn't have let you over-contribute.

If you contributed $9,250.58 to a Roth 401(k) in 2024, you were $13,749 under the limit, not over it. ‌You shouldn't report this in the IRA section of your tax return. ‌It will show up in box 12 of your W-2, with a code of AA.

Here is some information you may find useful: Planning for Retirement: Roth IRA or 401(k) - The TurboTax Blog

Re: Contributing too much to Roth 401k

dmertz — Mon, 10 Feb 2025 22:19:29 GMT

You did not make an excess Roth 401(k) contribution. Your Roth 401(k) is not a Roth IRA. Remove the erroneous Roth IRA contribution that you entered into TurboTax.

Re: Contributing too much to Roth 401k

joeyfoster10 — Mon, 10 Feb 2025 22:37:20 GMT

Thanks so much for this explanation. Since it is the first time I have contributed to any sort of retirement plan I am still learning the differences between the terminologies. I appreciate your time to explain them to me.

Have a nice day!