Caveat Emptor:  Its the IRS that will know and punish you big time. Your annual contribution limit is in TOTAL (not per plan) - regardless of how many accounts you have. Your employer SHOULD "cut you off" when you hit your annual maximum - but don't count on it. YOU should be tracking it.
2010-09-11 10:38:19

Smiling:  Both of the answers are incorrect (or at least partially incorrect): You are allowed to contribute a maximum of $16500 in 2010 to a 401K. This is from all your jobs (not $16500 from each job). The separate jobs don't know about each other, so it's your reresponsibilityo monitor this. Companies have triggers in place that will usually stop fufurtherontributions when you met the annual maximum. If there is a company contribution, you need to check how this is handled at your company. Some companies contribute based on each of your contributions. In these situations, if you stop contributing before the end of the year you will not get company contributions for the payrolls that you didn't have a contribution. To avoid this it's always best to spread your contributions out for the entire year. Regarding your over payment of the 401K, the 401K contribution will appear on all your W2s. When you prepare your 1040 it will show you had an over contribution to the 401K, any money you have over the annual maximum needs to be applied to income (if you are using a computer program this will happen automatically). You won't have a penalty for making this error, your withholdings that you had will be too low because it didn't include this amount and your other tax withholdings would be lowered because these earnings would be considered pretax. Because your withholdings were not high enough you MAY have a small penalty. Once you have paid tax on this money, you need to notify the 401K administrator that taxes were paid on this money. You can withdraw the money at that time, penalty free (this is what I would do). You can keep it in your 401K if you want (but a 401K is sort of hostage of your money so why leave it there). If you leave it there you need to make sure that the administrator has this money as an aftertax contribution, that way you are NOT charged taxes again when you withdraw the money during retirement. It's really not a big deal. This happens all the time. You just need to make sure that all the administrative stuff gets handled correctly = taxes paid, 401K knows this is aftertax, etc. Additional info: I don't know why everyone is giving me the thumbs down = this is the correct answer. I work in Benefits and this is how we have always told people to to handle it. After I got all the thumbs down, I re-researched this and it is accurate.
2010-09-11 11:13:22