11 Feb Remove Excess Salary Deferrals by April 15, 2022
The total of all salary deferrals a participant makes to various retirement plans – including 401(k), 403(b), SARSEP and SIMPLE IRA plans – is limited to $19,500 (plus an additional $6,500 if age 50 or over) for 2021.
If you exceed this limit for 2021, you must take corrective action to withdraw the excess deferral amount, plus earnings, by April 15, 2022.
If you withdraw the excess salary deferrals, plus earnings, by April 15:
- Excess deferrals are taxed in the calendar year deferred (2021)
- Earnings on the excess are taxed in the year withdrawn (2022)
- Excess is not subject to the 10% early distribution tax, 20% withholding, or spousal consent requirements
If you don’t withdraw the excess salary deferrals, plus earnings, by April 15:
- Excess deferrals are taxed in the calendar year deferred (2021) and again in the year withdrawn
- Earnings on the excess are taxed in the year withdrawn
- Withdrawals may be subject to the 10% early distribution tax, 20% withholding, and spousal consent requirements
- Make correction to the affected plan using the Self-Correction or Voluntary Correction Programs
Individuals who made salary deferral contributions to two or more retirement plans in 2021 may be most at risk for exceeding the deferral limit. The Interactive Tax Assistant can help you determine how to correct excess salary deferrals.
Retirement Plans Video Series
This IRS video series for small employers and self-employed individuals provides an overview of the key features of many different types of retirement plans.
What you Should Know About Retirement Plans: This video series discusses the key features of the qualified retirement plans many small employers have adopted.
What you Should Know About IRA-Based Plans: This video series discusses the key features of the IRA-based plans adopted by many small employers.
Retirement Plans for Small Employers and Self-Employed: This recorded webinar, in English and Spanish, helps you compare the types of retirement plans available for your business or organization.
- Retirement Plans for Small Employers and Self-Employed
- Retirement Plans for Small Employers and Self-Employed (SP)
Original content by irs.gov. This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.