The IRS limits the amount you can personally defer each year into a qualified retirement plan. For 2020, an individual’s deferrals (whether pre-tax or Roth) are limited to $19,500 across all qualified retirement plans. (This limit is subject to incremental annual increase.) Employees who are 50 years of age or older can make catch-up contributions up to $6,500, allowing them to contribute a total of $26,000. Contributions to Individual Retirement Accounts (IRAs) and any employer contributions to qualified retirement plan accounts do not count towards this limit.
If you exceed the annual limit, excess deferrals will not be deducted from your income and are subject to taxation. Participants who change employers during a given year and contribute to multiple retirement plans are the most frequent source of excess deferrals. If you are participating in other retirement plans during the year, report these deferrals in your Guideline Dashboard so we can help you avoid exceeding the annual deferral limit.
So long as corrective distributions of excess deferrals are made before April 15th of the year following the excess contribution, the taxation on your excess contribution is the only consequence. If the excess deferrals are not distributed by your tax filing deadline, they are still taxable in the year contributed and will be taxed a second time when they are ultimately distributed.
If you require a corrective distribution from your Guideline account, you must provide us with a completed Refund of Excess Deferrals Form no later than April 1st. Guideline requires two weeks to process refunds. Any requests made after April 1st will not be completed before April 15th.