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I recently left Job A. At Job A I maxed out my 401K at $17,500 in July 2014. The match at this company was $0.
I recently started working at Job B. Their match is outstanding. Could I in the remaining months of 2014 contribute $10,000 to Job B's 401K to take advantage of the outstanding match?
Then somehow withdraw $10,000 from Plan A's 401K keeping me at the $17,500 limit? Could I do this with just paying the income tax? Or would I have to pay a penalty also?
I recently left Job A. At Job A I maxed out my 401K at $17,500 in July 2014. The match at this company was $0.
I recently started working at Job B. Their match is outstanding. Could I in the remaining months of 2014 contribute $10,000 to Job B's 401K to take advantage of the outstanding match?
Then somehow withdraw $10,000 from Plan A's 401K keeping me at the $17,500 limit? Could I do this with just paying the income tax? Or would I have to pay a penalty also?
Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.
To avoid the excess contributions tax:
withdraw the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
withdraw any income earned on the excess contribution.
See Pub 590 for certain conditions that may allow you to avoid including withdrawals of excess contributions in your gross income.
I recently left Job A. At Job A I maxed out my 401K at $17,500 in July 2014. The match at this company was $0.
I recently started working at Job B. Their match is outstanding. Could I in the remaining months of 2014 contribute $10,000 to Job B's 401K to take advantage of the outstanding match?
Then somehow withdraw $10,000 from Plan A's 401K keeping me at the $17,500 limit? Could I do this with just paying the income tax? Or would I have to pay a penalty also?
The limit applies to you, not to any particular 401k plan. You may contribute no more than the limit, per year.
No, you can't just withdraw 10k from the old plan. Your form w-2 will show you contributed 17.5k to the plan. Withdrawing now does not change that fact.
Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.
To avoid the excess contributions tax:
withdraw the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
withdraw any income earned on the excess contribution.
See Pub 590 for certain conditions that may allow you to avoid including withdrawals of excess contributions in your gross income.
Not sure how IRA contribution limits are relevant to the OP's question.
I recently left Job A. At Job A I maxed out my 401K at $17,500 in July 2014. The match at this company was $0.
I recently started working at Job B. Their match is outstanding. Could I in the remaining months of 2014 contribute $10,000 to Job B's 401K to take advantage of the outstanding match?
Then somehow withdraw $10,000 from Plan A's 401K keeping me at the $17,500 limit? Could I do this with just paying the income tax? Or would I have to pay a penalty also?
You would end up paying income tax on the $10,000 contribution this tax year and again when you withdraw the funds at retirement. This might be worth it since you would get $10,000 match from your new employer. I am not sure if there is any penalty (above paying standard income taxes) for a 401k over-contribution so you should consult a tax professional to be sure.
You should consider spacing out your contributions across all your paychecks. With dollar cost averaging, the assumption is you are buying at regular intervals, but when you "surge" funds into a 401k in an uneven way, you cannot average out price movements in the market in Q3 and Q4. It would have also partially avoided the situation you are in. I withhold $674 per paycheck over 26 paychecks. Next year, I will up it to $693.
The IRS is a pain in the ass and I would never intentionally do anything to make my taxes more difficult. It takes months to resolve IRS issues even when you are in the right. I believe you will have to pay a penalty for withdrawing from your 401k. Is the match really that awesome that you are going to create this mess for yourself?
- aus1ander - My employment didn't lend it's self to spacing out the contributions. I also learned that you get hosed by most companies matches to contribute in large chunks. I did the math on my old company. If I contributed 17.5 over the year they would match about $2300. However, doing it in 6-10 paychecks brought my match to $300. Lame.
I did learn my answer thanks to IDtheftV 's link. Looks like you can actually do it without penalty. However, it is first in first out. So, if I contribute to my new employer the only way to correct the over contribution is to take it from my new employer.
Oh well it was worth trying
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