How Can a 403(b) Sponsor Correct 415 Limit Excess Deferrals?

Q: We had a 415(c) limit excess in our 403(b) plan in 2025 for a participant. The participant made both elective deferrals and received employer contributions to the plan, which resulted in the excess. In correcting the error, should we forfeit employer contributions, distribute elective deferrals, or both?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: First of all, you should confirm that any excess elective deferrals cannot be reclassified as catch-up contributions (including the 15-year catch-up), since catch-up contributions are not subject to the 415 limits. Assuming that you have done that and still have a 415 limit excess, the IRS has special correction rules for a participant with both employer contributions and employee elective salary deferral contributions that exceed the 415 limits:

Step 1: Distribute unmatched elective salary deferral contributions (adjusted for earnings) to the affected participant. If any excess remains, proceed to Step 2.

Step 2: Distribute elective salary deferral contributions (adjusted for earnings) that are matched and forfeit related employer matching contributions (adjusted for earnings). If any excess remains, proceed to Step 3.

Step 3: Forfeit employer profit-sharing contributions until the annual additions no longer exceed the 415(c) limits.

Please note that you are also required to report the corrective distribution on Form 1099-R. The participant should include the distribution as taxable income, but does not have to pay the 10% additional penalty tax on early distributions under Internal Revenue Code Section 72(t). Additionally, the participant may not rollover the corrective distribution to another qualified retirement plan or to an IRA.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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