Contributing too much to a 401(k)

For many Maryland workers, a 401(k) retirement account is one of the perks of their jobs. However, the Internal Revenue Service has found that some people have taken advantage of the system and are making contributions that are in excess of what is currently allowed.

At present, the annual contribution limit is $18,500. The Treasury Inspector General for Tax Administration (TIGTA) has issued a report that quite a few employees have been taking advantage of the system and exceeding that threshold. This of course has had the effect of reducing the amount of revenue that the Treasury Department would otherwise get. The Internal Revenue Service has indicated in response to the report that it plans to take a few steps to try and correct the problem. One would be to notify all employers about the issue. More importantly for taxpayers, the IRS has stated that it will make this issue a focal point of audits.

The problem is not necessarily widespread, and it has been estimated that, after a review of a sampling of tax returns for 2014 (when the annual contribution limit was $17,500), only 1,400 taxpayers who have only one 401(k) plan have exceeded the limit. This would have resulted in approximately $8 million in additional tax revenue. However, many taxpayers have more than one such retirement account, and the TIGTA believes that the resulting shortfall in these cases is more than $30 million.

There is a way for taxpayers who get audited for this particular reason to avoid further penalties, and that is to withdraw the excess contribution and treat it as income for the year it was made. It might be advisable for people who are in this position and have been contacted by the IRS to meet with a tax attorney and discuss the issue.

No Comments

Leave a comment
Comment Information

Contact Kundra and Associates Today

Please call our offices at 301-424-7585 or fill out the form below to arrange a confidential consultation.

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.


Privacy Policy

Email Our Attorneys

Rockville Office
110 North Washington Street
Suite 406
Rockville, MD 20850

Phone: 301-424-7585
Fax: 301-424-7047
Rockville Law Office Map

Washington, D.C. Office
1025 Connecticut Avenue NW
Suite 1000
Washington, DC 20036

Phone: 301-424-7585
Fax: 301-424-7047
Map & Directions

Mumbai, India
C/o Anmol Sekhir Consultants Pvt. Ltd.
Chartered Accountants
3rd Floor, Sahakar Bazar
Opposite Railway Station
Bandra (West), Mumbai, India 400-050

Map & Directions