Two 401(k)s in One Year? The Excess-Deferral Trap to Catch Before Year-End

The elective-deferral limit is per person, not per plan. For 2026 you can defer $24,500 across all your 401(k)s combined (IRS, 2026). Change jobs mid-year, max both, and you have an excess deferral. Request a corrective distribution of the excess plus earnings by April 15 to avoid double tax.

Why nobody caught it for you

Neither payroll system was watching. Your old employer’s plan tracked what you deferred there. Your new employer’s plan started your counter at zero on day one. Each did its job. The limit that binds them lives with you, the taxpayer, and the IRS says so plainly: “A participant must aggregate all elective deferrals contributed to all of the plans in which they participate” (IRS, “Consequences to a participant who makes excess deferrals to a 401(k) plan,” updated 2025).

That is the whole trap. Two plans, one limit, no shared visibility. It hits people who did the responsible thing and maxed their contribution rate at both stops.

Run the arithmetic on a common San Diego case. You defer $18,000 at the first employer through June, land a new role, set the new plan to max again, and defer another $18,000 by December. You are at $36,000. The 2026 limit is $24,500, so $11,500 is an excess deferral, unless you are old enough for the catch-up (more on that below).

What the excess actually costs

Left alone, an excess deferral gets taxed twice. Once in the year you earned it, because it never should have escaped income. Again when it eventually comes out of the plan years later. The IRS states that unless timely distributed, excess deferrals are included in income for the year contributed and taxed a second time at distribution (IRS, updated 2025). That is the tax drag you are trying to avoid.

The fix is a corrective distribution. You tell one of the plans to pay back the excess amount plus the earnings it generated, and you do it by a hard date.

Source: IRS, “Consequences to a participant who makes excess deferrals to a 401(k) plan,” updated 2025. The April 15 deadline is not postponed by filing a tax-return extension.

The two moves, in order

First, the correction for what already happened. If you have already blown past $24,500 across both plans this year, you request the corrective distribution of the excess plus allocable earnings from one plan, and it has to be done by April 15 of next year. Note the deadline does not move even if you extend your return. Confirm the exact excess figure and the earnings calculation with your CPA and the plan administrator before you file the request, because the earnings math is theirs to run, not yours to guess.

Second, the part that is still in your hands. It is only late September. If you are close to the limit but not over it yet, you can throttle the deferral rate at your current employer now and land the year exactly at $24,500 rather than triggering a distribution you have to unwind later. One is a cleanup. The other is just avoiding the mess. The second is easier every time.

Where the catch-up changes the picture

The limit is not $24,500 for everyone. If you are 50 or older, you can add an $8,000 catch-up in 2026, for $32,500 total. If you turn 60, 61, 62, or 63 during 2026, the catch-up is $11,250, for $35,750 total (IRS, 2026). Deferrals that fit inside your catch-up limit are not treated as excess. So the same $36,000 that is a clear overage for a 40-year-old may be entirely fine for someone eligible for the full catch-up. Age is the first thing to check before anyone panics.

Keep in mind the aggregation rule still applies inside the catch-up. It raises your ceiling, it does not give each plan its own.

One person watching the whole board

Here is the framing I come back to with high earners who move between employers. Every plan you touch is doing narrow bookkeeping on its own slice. Nobody is standing over the total except you. That is fine in a year you stay put. It is exactly where the mistake lives in a year you change jobs, because the plan you left and the plan you joined will never compare notes.

The version that works is having one point of contact who sees every deferral, every W-2 box 12 code, and coordinates the back half of the year before December closes the window. That coordination is cheaper than a corrective distribution and far cheaper than the double tax. For how this fits the broader picture of tax strategy and retirement-account coordination when your income runs high, see the San Diego HENRY strategy. If part of your catch-up is now forced into Roth, the mechanics are in the 2026 Roth catch-up rule.

FAQ

How do I even know if I over-contributed?

Add the elective deferrals from every 401(k), 403(b), or similar plan you contributed to this year. Box 12 on each W-2 (code D for pre-tax, AA for Roth) reports them. If the total across all of them tops your 2026 limit ($24,500, or higher with a catch-up), the amount above the limit is an excess deferral. Confirm the figure with your CPA before acting.

Which plan do I ask for the corrective distribution?

You can request it from either plan, but you have to name which one and by when. Most people go back to the plan that pushed them over, though it is your choice. The plan administrator calculates the earnings that come out with it. Ask them to run that number rather than estimating it yourself.

What if I miss April 15?

The excess stays in the plan and gets taxed a second time when it eventually comes out ([IRS, updated 2025](https://www.irs.gov/retirement-plans/consequences-to-a-participant-who-makes-excess-deferrals-to-a-401k-plan)). The correction also gets more involved. If the date is close, treat it as the priority and coordinate with your plan administrator and CPA right away.

Does the employer match count against my limit?

No. The $24,500 limit is on your own elective deferrals, not the employer match. The match falls under a separate, larger overall limit. This matters because a big match can make your account balance look high while your own deferrals are still under the line, or over it, depending only on what you elected.

I am 61 and moved jobs. Am I actually over?

Maybe not. Your 2026 ceiling with the enhanced catch-up is $35,750 ([IRS, 2026](https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500)). Add both plans and compare to that number, not to $24,500. Age changes the answer more than almost anything else here.

Still not sure whether you are over the line for this year, or how close you can safely run the rest of it? That is usually a quick look at two W-2s and a deferral rate. Book a complimentary conversation and we can check it before year-end closes the easy fix.

Hope that helps.