A. If you put a little too much in your retirement account, by accident or not, you will face the 6% penalty. But the good news is you can correct an excess contribution without facing tax penalties.
Here is how.
Contact your IRA custodian with the amount of the excess contribution you made. Filers have until the extension filing date to correct an IRA excess - usually October 15. However, you also need to take out the earnings on that excess contribution. Custodians can usually calculate that for you. You’ll owe a 10% premature distribution penalty on the earnings if you are under age 59 1/2. If you don’t correct the excess, the 6% penalty applies each year you miss the deadline until it’s fixed.
April 15 is the deadline to correct a 401(k) excess. The 401(k) limit for 2019 is $19,000 for those under age 50. It’s possible to contribute to multiple 401(k)s if you switch jobs or work two jobs; if you contribute more than $19,000 in a year, it’s called an excess deferral. Contact your 401(k) service provider or your HR department to let them know and get assistance correcting the excess deferral. Any earnings will be taxed but not subject to the 10% premature penalty. Note that all deferral plans are included in the $19,000 limit, including the SIMPLE IRA, individual or solo 401(k), and SARSEP (a specific SEP IRA).
If you don’t correct your 401(k) excess deferral by April 15, the excess deferral will be subject to double taxation, both in the year contributed and the year it’s finally withdrawn. It will also be subject to the 10% premature penalty if you’re under age 59 1/2. The earnings on the excess deferral are taxable in the year withdrawn.