Consequences to a Participant Who Makes Excess Annual Salary Deferrals

November 15, 2019

IRC Section 402(g) limits the amount of retirement plan elective deferrals you may exclude from taxable income in your taxable year, which is generally the calendar year. Your 402(g) limit for 2019 is $19,000.

The 402(g) limit applies to elective deferrals made by you to various plans, including:

• 401(k) plans,
• 403(b) arrangements,
• Salary Reduction Simplified Employee Pension Plans (SAR-SEPs), and
• Savings Incentive Match Plans for Employees (SIMPLE-IRAs).

The 402(g) limit is an individual limit and not a plan limit, so you must aggregate all elective deferrals contributed to all the plans in which you participate during the taxable year. For example, if you work for two different employers in 2019 that each have a 401(k) plan, you can only defer $19,000 in total - not $19,000 to each plan.

Deferrals more than the annual 402(g) limit are called “excess deferrals.”  If excess deferrals are not corrected timely, the excess deferrals (including earnings on the excess during the taxable year) will be taxable income to you.

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