Q: I received a letter from my employer stating that I “over contributed” to my 401k and have to withdraw a few thousand dollars from the account. I know I have not contributed the max of $17,500. So why? Why do I have to take this money out and pay more in tax?

A: The simple answer is testing. Annually, each company that offers a 401k plan has to go through DOL/IRS testing to make sure the highly compensated employers are not contributing a disproportionally high amount compared to everyone else who participates in the plan. If a number of the lower wage employees do not participate, or contribute a much smaller percentage vs. the higher compensated participants, you will be told you have over contributed.

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