Employer sponsored retirement plan limits remain unchanged at $19,500 plus an additional $6,500 catch up for those Age 50 and older for tax years 2020 and 2021.
Often a plan’s administrator will monitor contributions and notify the participant or even stop the contributions once they have contributed the maximum amount allowed. However, this is not the case where a participant may have access to multiple plans (such as two different employers) or in a year where a job change occurs.
Participant contributions are reported on Form W2 Box 12 and must not exceed the IRS limits each year. If the total contributed does exceed the limit a participant should notify their plan administrator of the excess contributions and remove any excess by April 15 of the year following the close of the calendar year during which the excess contribution was made. A new Form W2 would then be issued reflecting the change and potentially higher taxable income (if adding back the pre-tax deferral). Failure to make the “corrective distribution” on time could result in double taxation of the excess amount, once for the year in which the excess contribution was made and then again for when the excess contribution was distributed as well as a penalty for making excess contributions.