401K contribution

Submitted by Matthew Morea on Thu, 2022-06-02 14:42

Hello and thanks. I just left a company a few weeks ago and am joining another company next week. It looks like my old company took a large 401k pre tax contribution out of last severance check and deposited it into my old 401K. It was about $21k in one shot.

Am i allowed to start with this new company and start fresh by maxing out the 401K etc.? Or will that put me over the IRS limits?
Thanks



Submitted by Alan - IRA critic on Thu, 2022-06-02 17:24

  • You are only allowed a total of 20,500 of elective deferral contribution per year regardless of how many employers you have. That amount rises to 27,000 if you will have reached age 50 by the end of this year. Therefore, you will have to keep track that your total contributions do not exceed the limit and tell the new plan what amount you are allowed to contribute for the rest of 2022 to stay within the limit.
  • Before doing that you will have to determine if that large contribution is correct. You are allowed to receive contributions on certain pay you already earned such as unused sick or vacation pay, but the plan cannot take 401k contributions from severance pay for services you did not render. Your final check stub may show your year to date deferral total, but you first need to be sure that the total is correct and that there will not be a corrective distribution back to you. Once you know the total deferral amount and that it is correct, you can do the math and tell your new plan how much you can contribute for the rest of 2022 and stay within the limit. If you end up going over,  you will have to request the new plan to return your excess to avoid eventual double taxation, so it’s easier if you do not exceed the limit in the first place. Some plans will not return the excess unless you went over the limit within that single plan, and that is not the case here.


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