The total of all salary deferrals a participant makes to various retirement plans – including 401(k), 403(b), SARSEP, and SIMPLE IRA plans – is limited to $19,500 (plus an additional $6,500 if age 50 or over) for 2021.
If you exceed this limit for 2021, you must take corrective action to withdraw the excess deferral amount, plus earnings, by April 15, 2022.
- If you withdraw the excess salary deferrals, plus earnings, by April 15:
- Excess deferrals are taxed in the calendar year deferred (2021)
- Earnings on the excess are taxed in the year withdrawn (2022)
- Excess is not subject to the 10% early distribution tax, 20% withholding, or spousal consent requirements
If you don’t withdraw the excess salary deferrals, plus earnings, by April 15:
- Excess deferrals are taxed in the calendar year deferred (2021) and again in the year withdrawn
- Earning on the excess are taxed in the year withdrawn
- Withdrawals may be subject to the 10% early distribution tax, 20% withholding, and spousal consent requirements
To avoid double taxation, taxpayers who have exceeded the contribution limits should ask their plan administrator to distribute any excess amounts to them before April 15, 2022.
When a taxpayer contributes to more than one plan, the taxpayer should keep in mind the following when deciding from which plan to request a distribution of excess contributions: getting the maximum matching contribution that may be offered; type of investments in the plan; and plan fees.