IRS Flags $24,500 Excess Contribution to Retirement Plans from Dual Employment
A research scientist working at two separate institutions contributed the maximum annual limit of $24,500 into each employer's retirement plan—$24,500 in a university-sponsored 403(b) and another $24,500 through a federal contractor’s 401(k). However, under IRS rules, these contribution limits are individual caps shared across all employers. As such, the total of $49,000 exceeded the allowable limit by $24,500. The employee must request a corrective distribution to recover the excess amount and any earnings before April 15 of the following year or face double taxation—once in the contribution year and again upon withdrawal. The IRS treats governmental 457(b) plans differently; these have their own $24,500 limit that can be combined with a separate 401(k) or 403(b), allowing eligible workers to contribute up to $49,000 total. The case highlights the complexity of managing retirement contributions for individuals working at multiple employers. Employers and payroll systems do not track cross-plan limits, placing responsibility on employees to monitor their combined deferrals.
Topics: employee contributions IRS regulations retirement planning