Guidance Needed: Exceeding the 2024 401(k) Contribution Limi

[th1nkannie]

What steps should I take if I exceeded the 2024 401(k) contribution limit of $23,000 when I file my taxes?

[MAK70]

You do not pay a penalty for an excess deferral. But if you do not take out the excess amount by April 15th, then you are taxed twice on the excess deferral left in the plan. This happens once when you contribute it (with the steps below) and again when you receive it as a distribution (reported on Form 1099-R). You can't include the excess amount in the cost of the contract even though you included it in your income.

You must include the excess deferral in your wages in the year the excess deferral happened. 

1. Login to your TurboTax Account 
2. Click "Federal" from the left side of your screen
3. Scroll down to "Less Common Income" and click "Show More"
4. Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
5. Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
6. On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
7. Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
8. On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
9. On the "Any Other Earned Income" screen enter "2024 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

[LindaS5247]

You are correct The most you could contribute to a 401(K) plan for 2024 was $23,000.

If you are 50 or older, you can make catch-up contributions of an additional $7,500 per year in both 2024 and 2025. Your plan would have to allow for these catch-up contributions and they would have to be made prior to the end of the plan year.

If you can catch the over-contribution problem before April 15 and before you file your taxes, you can get a corrected W-2 to use.

You should inform your Employer/Plan Administrator as soon as you realize you have made an over-contribution. Your Plan Administrator should provide you with any forms and help that you will need.

Your Employer/Plan Administrator will return the excess money to you as well as any interest that money earned

The excess that you deferred will be treated as income in the year they are made.

If you can fix the error before April 15, 2025 deadline, the correction is much easier.

You’ll need to file your taxes using the updated W-2 and you’ll have to pay taxes on the overcontribution as if it were wages. Your corrected W-2 would show these wages.

if you miss the deadline, you’ll owe those additional taxes and you may have to pay a 10% early withdrawal penalty on the amount.

Then you will owe additional taxes again in the year it was corrected (likely 2025).

If you didn’t catch the over-contribution early enough, you’ll still follow these steps, but you’ll would have to to file an amended tax return

Click here for "Retirement topics - Catch-up contributions"