401K with 2 employers contributed 38K

New client had 401K with first employer, made 19K contribution through paycheck. He also made a 19K contribution to his 401K with the next employer through paycheck. I thought the limitation was 19K per year.

My understanding is that the maximum someone can put into a retirement all plans combined, 401K and SEP for self-employed is 56K for 2019. Is that correct?

We also want to do a SEP for him.

19K is the annual deferral limit per taxpayer, no matter how many jobs you have. Client needs to withdraw the extra 19K plus earnings.

That's what I thought. When he withdraws the excess, he'll have 19K in 401K for 2019. He can then still contribute how much to his SEP schedule C for 2019? Is it 56K minus 19K =37K or the total 56K can go into the SEP schedule C. Total retirement contribution for 2019 would then be 56 SEP + 19 401K = 75K.

The limit is $56. So $56K-19K is the SEP limit.

I just found this and this, if I understand it correctly, seems to say that the SEP is not limited by the 401K. What do you thinK?

https://www.irs.gov/retirement-plans/ho ... e-ira-plan

SIMPLE IRA plan limits
Employee contributions

You can make salary deferrals (salary reduction contributions) of up to $13,500 to a SIMPLE IRA plan in 2020 ($13,000 in 2019). If you’re age 50 or over, you can contribute an additional $3,000 (in 2015 - 2020) in catch-up contributions.

If you participate in more than one retirement plan that allows you to make salary deferrals (such as a 401(k) or a 403(b) plan), your total annual employee contributions to all the plans can’t exceed your personal limit of $19,500 in 2020 ($19,000 in 2019), plus an additional $6,500 in 2020 ($6,000 in 2015 - 2019) if you're age 50 or older. However, because the SIMPLE IRA plan limits your contributions to $12,500, plus an additional $3,000 catch-up contribution, this is the maximum amount you can contribute to your SIMPLE IRA plan.

Employer contributions

Your employer must either:

match your salary deferrals, on a dollar-for-dollar basis, up to 3% of your compensation, or

make a nonelective contribution of 2% of your compensation (taking into account no more than $285,000 of compensation in 2020 ($280,000 in 2019).
SEP plan limits
Your contributions to your SEP plan (that is not a SARSEP) are not reduced by the contributions you or your employer make to your employer’s SIMPLE IRA plan.

SEP plans (that are not SARSEPs) only allow employer contributions. For a self-employed individual, contributions are limited to 25% of your net earnings from self-employment (not including contributions for yourself), up to $57,000 (for 2020; $56,000 for 2019). You can calculate your plan contributions using the tables and worksheets in Pub. 560.

If your business sponsors another defined contribution plan in addition to your SEP plan (for example, a profit-sharing plan or a 401(k) plan), then your contributions for yourself to all these plans may not exceed 25% of your net earnings from self-employment (not including contributions for yourself), up to $57,000 (for 2020; $56,000 for 2019). Note that salary deferrals are not subject to the 25% limit and catch-up contributions are not included in the $57,000 limit.

I just found this and this, if I understand it correctly, seems to say that the SEP is not limited by the 401K.

That cite/link appears irrelevant, it's discussing SIMPLE plans.

In the case of separate employers, including self-employment, the SEP limit is siloed to the self-employment income and can have its own $56k maximum contribution, subject to income limits.

This isn't the case when there are say multiple schedule C businesses or some other common ownership. If that might apply here we can delve into the rules and thresholds.

Thanks for correcting me.

I thought the limitation was 19K per year.

It is. Your guy violated the rule. When he changed jobs, if you knew about said change, you should have informed him to not contribute to the 401k of the new employer.

In any case, the excess will be taxable (now). It is advisable to remove it, otherwise it ends up getting taxed twice (once now for the violation and once later, when he withdraws it at retirement).

My son changed jobs in late 2019 and I had warned him about over-contributing to both his 401(k) and his HSA, both of which were at the old job and the new job. Luckily, new job had a form for each where the on-boarding employee provided calculations of the "available" amount for each for the remainder of 2019. Wish more companies would think like that.