United States Social Security Administration (SSA) has issued a clear and direct warning. We're talking about a type of mistake that can lead to significant penalties if it's not corrected in time.
The fact is that if you've exceeded the annual contribution limit to your 401(k) retirement plan, you should act without delay. Every year, the Internal Revenue Service (IRS) sets a maximum limit for contributions to 401(k) plans.
SSA Tells You to Review This Limit: Do This if You've Exceeded It
For 2024, the limit is $23,000 for individuals under 50 years old, with an additional $7,500 contribution allowed for those who are 50 or older. If you contribute more than this amount, it's considered an excess. This excess can result in additional taxes and, in some cases, penalties if it's not properly corrected.
SSA recommends acting quickly to fix the mistake and avoid negative tax consequences with the IRS Interactive Tax Assistant (ITA). ITA is an online tool that guides users through a series of questions to determine if they've exceeded the contribution limit. If so, it provides instructions on how to correct the situation.
What Is ITA and How Does It Help Us?
ITA is a free and confidential tool offered by the IRS. By entering information about your contributions and your tax situation, ITA can determine if you've exceeded the contribution limit to your 401(k).
It can also calculate the amount of the excess and provide specific steps to correct the mistake, such as requesting a corrective distribution. It's important to note that ITA is available only in English. However, its interface is intuitive and it can be very helpful for resolving common questions about excess contributions.
Deadline to Correct the Mistake
IRS states that any excess contribution must be corrected before April 15 of the year following the year in which the excess contribution was made. If it's not corrected within this period, the excess may be subject to additional taxes and, in some cases, penalties. Therefore, it's crucial to act quickly to avoid unfavorable tax consequences.
To access ITA, visit the official IRS website and look for the "Interactive Tax Assistant" tool. There you'll find the option to start the evaluation of your contributions and receive personalized guidance.