Excess 401(k) Contribution

On 3/25/22 3:06 PM, snipped-for-privacy@gmail.com wrote: [snip]

The only comment I will make here is that there would not be any evasion as long as the taxpayer declares the excess contribution as wages on his tax return. This is something he is required to do even without a W-2 being issued.

In your opinion, does the approach you describe rely on the reality that the

Might Company X's plan administrator even have a duty to // not // go snooping around to see if the employee is contributing to other companies' 401(k) plans?

In other words, even if the IRS audited employee Jones and then took a further step of cautioning Jones's two 401(k) plan administrators about possible ERISA violations, could the two plan administrators legitimately respond: "When it comes to excess contributions, plan administrators have no duty to identify whether an employee is making contributions to other 401(k) plans. Our plan documents in fact require us to ignore other elective deferrals an employee may be making to other 401(k) plans."

If this is Alan's position, and using the assumptions Alan provided (notably, the employee reports the excess deferrals as 'other wages' income), then it looks like a loophole to my (layperson's) eyes.

I guess the only protection built in is the reality that employees who have a 401(k) option tend to be full-time. That an employee would be part-time at two companies with both companies offering

Under Alan's assumptions, I guess all my prior declarations about how someone could get busted are wrong.

I would have thought this loophole would have received more treatment on the net. At least, my talents are not refined enough to find more discussion of this loophole.

If anyone can poke holes in Alan's assertions, I am interested.

Oh, he's not intending to evade any taxes. He just thinks that the employer matching funds for his excess contributions will be enough more than the additional tax that he will come out way ahead. Apparently that's the case.

I'm not making any assertions relative to employer responsibilities and ERISA rules and regulations. I am only asserting that the Internal Revenue Code and Regs require the employee to report any excess contribution as wages if not withdrawn prior to the due date of his tax return. That act fulfills the taxpayer obligation to the tax code. There would not be any willful attempt to evade taxes.

I can not comment on employer responsibilities to ERISA. I will say that I have no knowledge of an employer ever being notified by the IRS that one of their employees has contributed an amount in excess of the taxpayer's annual limit because the employee has active participation in multiple employer plans.

One would think there would be more on the net on the strategy Alan described. There are tons of sites, including of course the IRS site, that say not to go over the 401(k) plan "limits,"* and if one does, to correct the excess deferrals by working with the

But I am becoming versed in how the IRS's attempts to make its web site understandable to laypeople means things get lost in translation from the federal statutes to the eyes of those reading the IRS web site. At this point I have no problem saying the IRS blatantly lies at times.

The only site I found that speaks of Alan's strategy qualifies using this strategy with the phrase,

"If a plan permits... "

More at

• "limits" is in quotation marks because the IRC does not call them "limits." Internal Revenue Code 402(g) uses language more like Alan's language.

I don't know how to make this any clearer. I do not have a strategy. I do not have any recommendation on how one should make decisions on contributing to a 401K when one has multiple employers with employer plans. I am merely stating that the Internal Revenue Code acknowledges that a taxpayer might for whatever reason over contribute to "certain" qualified plans in a given year. If it happens, there is no additional tax rate applied to the excess. The only penalty if one does not withdraw the excess before the due date of the tax return is double taxation on the excess contribution: Once in the year of contribution and again when it is withdrawn. If a taxpayer fulfills the obligation to declare the excess as taxable wages because it is not withdrawn within the prescribed time period, there are no taxpayer repercussions from the IRS.

Alan, you have been completely clear about your position all along. You have been clear that you are not making any assertions about employer, plan administrator, or employee responsibilities to either the two plans' documents or ERISA.