How to Fix Overcontributions to Your 401k

A 401k plan has yearly contribution limits. For 2024, the total contribution cap is $69,000 (or $76,500 if you’re age 50 or older). In 2025, the limit increases to $70,000 ($77,500 for those 50+).

These limits apply to all tax-advantaged contributions made to your 401k or Solo 401k in a given year. Contributing more than the allowable amount is considered an overcontribution, also known as an excess deferral.

Overcontributions to a 401k plan typically happen when:

401k plans generally don’t prevent you from exceeding the limit. It’s your responsibility to monitor your contributions and stay within the cap. If you accidentally contribute too much, here’s what you need to know and how to fix it.

Potential Penalties for Overcontributing to a 401k

Before we learn how to fix the problem, let’s first understand the potential penalties involved with overfunding a 401k or Solo 401k.

Contributions made that are in excess of the contribution limit are called “excess deferrals” by the IRS. This amount must be reported and paid back to you by the federal tax filing date, typically April 15, unless the date falls on a weekend or holiday.

If the excess is not corrected by the deadline, you may be taxed twice on the same amount: once for the year the overcontribution occurred, and again when the funds are eventually withdrawn.

In some cases, a delayed correction may also be treated as an early distribution, which could trigger an additional 10 percent penalty on the overcontributed amount.

That’s why fixing the issue before the April 15 deadline is critical.

What to Do If You Overfunded Your 401k

If you realize you’ve overcontributed to your 401k plan, take the following steps to correct the error:

Step 1: Contact your employer or plan administrator to report the excess deferral.

Step 2: Request a corrective distribution. The plan administrator will return the excess amount to you. This process can take time, so avoid waiting until the last minute. It’s best to report the issue no later than March 1.

Step 3: Get a new W-2. The excess deferral that was returned to you must be added to your taxable income for the year.

Step 4: If your excess deferral earned any money while in your 401k, that income must also be removed and included in your taxable income.

Step 5: File Form 1099-R to report the corrective distribution to the IRS.

📝 Note: The deadline to complete these steps is April 15th of the following year. 

If you remove the excess contributions from your account AND any income earned from the excess contributions by the federal tax deadline, you’ll avoid paying double taxes.

📌 Also Read: How To Fix Overcontributions to an IRA

The Double Tax Explained

If you fail to fix the error by April 15 the following year, you may end up paying taxes on the same amount twice.

First, the excess deferral is taxed as part of your income in the year you overcontributed. Then, when you eventually withdraw the funds, they’re taxed again—because they weren’t properly removed and reported on time.

In some cases, the IRS may also treat the withdrawal as an early distribution, which could trigger a 10 percent penalty if you’re under age 59½.

When Do You Have to Fix a 401k Contribution Error?

You must withdraw any excess deferrals by April 15th of the following year, which is typically the federal tax deadline. If the date falls on a weekend or holiday, the deadline is moved to the next business day. 

📝 Important: Tax-filing extensions do not extend the deadline to fix an overcontribution. To avoid double taxation, the correction must be completed by April 15—regardless of any filing extensions.

Notify Your Employer or Plan Administrator by March 1

To give your plan administrator enough time to process the correction, it’s recommended that you report the excess deferral no later than March 1. Many plan providers use this as an internal deadline to ensure the corrective distribution and updated W-2 are issued before April 15. 

What Happens If You Don’t Take Action?

If you don’t correct the overcontribution, the excess amount will remain in the plan and your 401k could be at risk of disqualification. In this case, you may need to work with the IRS through the Employee Plans Compliance Resolution System (EPCRS) to resolve the issue and restore the plan’s tax-qualified status.

How to Fix Overcontributions to a Solo 401k

If you overcontribute to a Solo 401k, the correction process depends on whether the excess came from employee or employer contributions.

Quick Wrap-Up

Overcontributing to your 401k or Solo 401k is fixable—but time-sensitive. 

To avoid double taxation and potential penalties, make sure to notify your plan provider and correct any excess by April 15 of the following year.

If you’re unsure whether you’ve exceeded the limit, it may be worth reviewing your payroll records or reaching out to a qualified tax professional. Staying proactive helps keep your retirement plan on track and in good standing with the IRS.

📌 Looking for more guidance? Explore our other articles for tips on contribution strategies, plan limits, and tax-efficient retirement planning.

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