Facebook Rss Twitter Youtube MSN

Overstuffed your 401(k)? You won’t be penalized

Dec 21, 2009 | | Comments Comments Off

Dear Liz: When the stock market dropped this past year, I decided that was a perfect time to max out my 401(k) deduction to the plan’s 35% limit. The problem is that the IRS maximum contribution is $16,500, and it’s nearly impossible to get my withholding to exactly match the dollar limit. If I am slightly over the maximum at the end of the year, what is the IRS likely to do to me?
Answer: It’s typically not the IRS that takes action in these situations; it’s the 401(k) plan administrator that will either stop your contributions once you hit $16,500 for the year or send you back a check for any amount over the limit you’ve contributed.

You’ll have to pay regular income taxes on that money, but you won’t otherwise be penalized for trying to be aggressive about your retirement savings.

Related Posts

  • 401(k) loans can get really expensive
    Dear Liz: I bought my condo in 2009. I took out a loan on my 401(k) account to use for the down payment. I left my job in early 2012, and at the time...
  • How to shoot yourself in the foot
    Dear Liz: I want to stop contributing to my 401(k). How do I cancel it and withdraw my funds? Answer: You can stop contributing to most workplace re...
  • Insurance better than 401(k)?
    Dear Liz: Recently, someone from an insurance company proposed that I stop investing through my 401(k) at work and instead invest in his insurance co...
  • Save for retirement before you pay down a mortgage
    Dear Liz: My husband and I are fortunate to be in relatively good financial shape. We both plan to retire in 10 years when we turn 60. We have zero...

Categories : Q&A, Retirement, Taxes