Rules on two 401_ks in Same year
Is the max deferral for both 401_k in the same year limited to $19,500.
If so how do we ensure she doesn’t go over her limit with the 2nd company?
My client age 48, made $145,000 with her old employer. She deferred 13% from January thru August 31st.
She started her new job in September where she is making $155,000. She can start her 401-k with the company
October 8th. With that being said, how much is she allowed to defer from the 2nd company so she doesn’t go over but instead maxes out her deferral for 2021.
Permalink Submitted by Alan - IRA critic on Mon, 2021-09-27 15:43
The excess deferral limit of 19,500 is an individual limit for the year regardless of how many plans taxpayer participates in. Client needs to determine how much was contributed to the former employer plan, subtract it from 19,500, and then limit deferrals to the new plan to this difference. If her W-2 forms in January show that total 401k contributions exceeded 19,500 she will need to request that the new plan return the excess and receive it by 4/15/2022 to avoid eventual double taxation (2021 and when these amounts are eventually distributed down the road as RMDs or otherwise.
Permalink Submitted by ssel on Tue, 2021-09-28 02:52
If the client gets a generous 401k match from the second company, it might be better to simply overcontribute. For example it’s worth paying an extra 24% tax in order to get a 50% match from the company.