February 12, 2026
If you or your spouse has more than one W‑2 employer in the same year, you can accidentally exceed the IRS employee deferral limit.
This article explains which retirement plans share the same annual deferral limit, how to prevent an excess deferral when a job change happens mid‑year, and what to do if you discover an overage.
Dental households are often proactive savers, especially when the practice 401(k) is a key benefit. The problem we see isn’t “saving too much.” It’s saving too much in the wrong place, because payroll systems don’t coordinate across employers.
1) The rule most people miss: one annual employee deferral limit per year
Your elective deferral limit is an individual annual limit, even if you participate in more than one plan during the year.
Why this matters: you don’t get a separate “max” at each employer.
2) Plans that share the same annual deferral limit
If you contribute to more than one of these plan types in the same calendar year, your employee deferrals must be combined.
|
Plan type |
Shares the same annual employee deferral limit? |
|
401(k) |
Yes |
|
403(b) |
Yes |
|
SIMPLE IRA / SIMPLE 401(k) |
Yes |
|
SARSEP (rare/legacy) |
Yes |
|
457(b) |
No (separate limit) |
3) “We alreadymaxed our 401(k), can we still do profit sharing?”
Often, yes.
This mistake usually happens with employee salary deferrals, not employer contributions.
|
Contribution type |
Counts toward the employee deferral limit? |
Examples |
|
Employee salary deferrals |
Yes |
Pre‑tax 401(k), Roth 401(k), 403(b), SIMPLE salary reductions |
|
Employer contributions |
No |
Profit sharing, match, safe harbor, and non-elective contributions |
|
Overall plan cap (annual additions) |
Separate overall cap |
Employee + employer combined cap (plan‑design dependent) |
4) Prevention checklist when starting a new job mid‑year
If you or your spouse starts a new W‑2 position, don’t wait until year‑end.
|
Step |
What to do |
What we need from you |
|
1 |
Pull the most recent paystub(s) from each employer |
Paystubs showing year‑to‑date retirement deferrals |
|
2 |
Total year‑to‑date pre‑tax + Roth deferrals |
If you’re unsure what counts, send it to us |
|
3 |
Set the new employer deferral election correctly |
Often 0% if you have already maxed |
|
4 |
Re‑check after bonuses/raises |
One pay period can push you over |
5) If an excess deferral already happened: steps and deadlines
The IRS correction window is time‑sensitive.
|
Step |
Action |
|
1 |
Calculate the excess (how much over the annual limit). |
|
2 |
Notify the plan administrator and request a corrective distribution. |
|
3 |
Make sure the distribution is completed by the required deadline (many plans have internal cutoffs earlier than the IRS date). |
|
4 |
Report the excess and any earnings in the correct tax years. |
6) What happens if you miss the correction deadline
Missing the correction window can lead to an expensive outcome:
- The excess is taxable in the year of deferral, and
- It can be taxed again later when the money is ultimately distributed from the plan.
7) Why the right CPA matters (especially if the distribution happens in a later year)
Excess deferrals and corrective distributions are one of those areas where the paperwork can look “out of order”:
- The excess belongs in the deferral year from the taxpayer’s perspective, even if the distribution (and any tax form tied to it) occurs in a subsequent year.
A CPA, who knows this process, will make the right adjustments on the individual return so the situation is reported correctly from the taxpayer’s perspective, including coordinating the deferral‑year income inclusion with the later-year distribution reporting, and properly handling any taxable earnings.
8) Real-world example
A dentist's household had two W‑2 employers in 2024: the dental practice and an unrelated large employer plan. The spouse’s combined 2024 employee deferral exceeded the annual limit by a large amount.
They discovered the issue after the plan’s correction deadline, and the unrelated employer’s plan stated they would not process a late corrective refund for the prior year. The household stopped deferrals at the unrelated employer for 2025.
What this changes:
- The excess must still be handled correctly on the 2024 tax return.
- If the plan will not (or cannot) process a corrective distribution for that year, the funds generally remain in the plan until a distribution is permitted under the plan’s normal rules.
Excess deferrals are one of those problems that’s easy to prevent and frustrating to unwind. A quick mid‑year check, especially when a new W‑2 job starts, can keep your family’s retirement strategy on track and your tax return clean.
If you discover an overage, timing matters, and the right reporting matters just as much; an experienced CPA will coordinate the deferral‑year income inclusion with any later‑year distribution paperwork so the situation is fully and correctly reflected from the taxpayer’s perspective.
Not sure where to start? Contact us today!
References
Internal RevenueService. (2025, November 13). 401(k) limit increases to $24,500 for 2026,IRA limit increases to $7,500 (IR-2025-111). https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500.
Internal RevenueService. (n.d.). How much salary can you defer if you’re eligible for more than one retirement plan? https://www.irs.gov/retirement-plans/how-much-salary-can-you-defer-if-youre-eligible-for-more-than-one-retirement-plan.
Internal RevenueService. (n.d.). Retirement topics—What happens when an employee haselective deferrals in excess of the limits? https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-what-happens-when-an-employee-has-elective-deferrals-in-excess-of-the-limits.
Internal RevenueService. (n.d.). Consequences to a participant who makes excess annualsalary deferrals.https://www.irs.gov/retirement-plans/consequences-to-a-participant-who-makes-excess-annual-salary-deferrals.
Internal RevenueService. (2025). Notice 2025-67: 2026 amounts relating to retirement plansand IRAs, as adjusted for changes in cost-of-living.https://www.irs.gov/pub/irs-drop/n-25-67.pdf.
Internal RevenueService. (2026, January 23). About Publication 525, Taxable and NontaxableIncome.https://www.irs.gov/forms-pubs/about-publication-525.
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