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How do 401(k) contribution overages impact compliance?

Published

Employees are responsible for tracking their total 401(k) contributions across multiple employers to ensure they do not exceed IRS limits. Contributions made to a previous employer’s 401(k) still count toward these limits.

2025 Contribution Limits

  • Standard Employee Contribution Limit (402(g)): $23,500
  • Catch-Up Contribution for Employees 50+: $7,500 (total employee contribution limit: $31,000)
  • SuperCatch-Up for Employees 60-63: $11,250 or 150% of the regular catch-up limit (whichever is greater), replacing the standard catch-up contribution for those in this age range (total employee contribution limit: $34,750)

These limits apply across all 401(k) plans an employee contributes to in a single year.

What happens if an employee exceeds the IRS limit?

If an employee’s total contributions exceed the 402(g) limit, they must notify their current employer as soon as possible. Betterment can process a 402(g) corrective distribution to refund the excess amount.

  • The overage is removed from the 401(k) account and taxed in the year it was deferred.
  • The employee will receive a 1099-R for the year the correction occurs.

Deadline: The excess contribution must be removed by April 15 of the following year to avoid double taxation - once in the year it was contributed and again when withdrawn in retirement.

What if an employee overcontributes to a single plan?

If an employee exceeds the annual plan limit (e.g., by contributing more than allowed due to employer match or plan structure), the overage must be corrected through a 401(a)(30) correction.

  • Employers can request Betterment to process this correction before nondiscrimination testing.
  • If not corrected early, Betterment will identify and correct it during nondiscrimination testing.
  • The excess contribution is removed from the 401(k) plan to maintain compliance.

Deadline: 401(a)(30) corrections must be made by April 15th of the following year to avoid penalties.

Employers who proactively monitor contributions can request corrections before testing, helping to remain  compliant and avoiding potential delays.