Changing jobs
What are the rules when an employee leaves a job mid year, contributing to a 401k plan (not full limit yet). If the new employer does not offer a plan, can the employee contribute fully to an IRA? If there is a new 401k can the employee contribute up to $16,500 to the new plan, in addition to what he did in the old plan?
Permalink Submitted by mk foss on Thu, 2010-07-22 17:00
The 401k limit is $16,500 per person, so if someone changes jobs they can only defer an amount to bring them to the $16,500 balance. Any excess amount would be taxable as compensation income and should be withdrawn by the following April 15.
Coverage by a 401k plan for part of a year precludes a deductible IRA contribution unless the person has very low income. A nondeductible contribution can be made or possibly a Roth (but there’s an income limitation with the Roth).