Multiple 401k plans

Is it possible for a person who has two unrelated employers to participate and contribute to both employers 401k plans? If so, can they contribute the maximum to each?



If totally unrelated employers, contributions can be made to each, however the elective deferral limit is PER PERSON, therefore 19,000 is the total elective deferrals that can be made. These should be managed in order to get the highest possible matching contribution. Other plan limits are PER PLAN, not per person so the only concern will be not exceeds the 19,000 total elective deferral limit.



If a person contributing to two unrelated plans inadvertently made excess contributions over a couple of years, how can they remediate the problem?



If the W-2 forms report excess elective deferrals for any year, the amount of excess will be included in taxable income for the respective year. Tax programs will automatically add the excess to the wages line of the 1040.  There is no action the employee can take to change that, however there remains the exposure to eventual double taxation since the employee does not receive any basis in either of these plans and when the excess is created due to multiple plans, neither employer is aware of the problem. If the employee requests either plan to return the excess deferral amount in time for the employer to process the return with any earnings and the distribution is made by 4/15 of the following tax year, double taxation will be avoided. The excess will not be taxed with this distribution, but the earnings will be taxable in the year distributed. In this case since there were two years of excess deferrals and 4/15 of the following year has already passed, it is too late to receive a corrective distribution for either year. That means that the excess remains in the plan and when it eventually (possibly decades later) is distributed it will be treated like the rest of the pre tax balance and will be taxable income. This is when the double tax is realized. Partially offsetting this is that all earnings on the excess remains in the plan, therefore the employee will benefit from years of deferred taxes on the earnings generated on the excess deferral amount. Note that if Roth 401k deferrals are included, the treatment is more complicated since the Roth money was included in income from the start.



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