The most common basic personal finance advice anyone gets is this: Max out your 401(k) contributions. But what does that mean? How much is the max, and what do you do if you exceed it (yes, you can exceed it)?

For 2020, the Internal Revenue Service increased the maximum allowed contribution to $19,500 per year ($19,000 for 2019). The combined amount contributed by employer and employee is $57,000 for 2020 ($56,000 for 2019). If you are over 50 years of age, you can make catch-up contributions of an additional $6,500 per year ($6,000 for 2019). Check with your human resources department to determine what kind of pace you are on.

If you overcontributed to your 401(k) plan—that is, you contributed more than the annual maximum set by the IRS—you should notify your employer or the plan administrator immediately. Ideally, this notification should be provided by March 1 of the year after the excess deferral contribution, as it's technically known, occurred. This means that if you contributed too much in the current tax year, the notification should be provided by March 1 of the following tax year.

The excess deferral amount should be returned to you by April 15. For example, if the excess deferral occurred in the current year, it should be corrected—that is, removed from the account—by April 15 of the following year. This sum should include earnings accrued on the excess amount while it was in your account. You are required to add the earnings to your taxable income for the year the excess amount is distributed from your 401(k). In addition, if the excess amount was deferred on a pre-tax basis, your employer must amend your W-2 Form to show the returned amount as wages.

For example, assume your excess deferral occurred this year, and you provided timely notification to your plan administrator. If your contributions were made on a pre-tax basis, your employer must amend your W-2 for this year to show the excess deferral amount as taxable wages (in box 1).

If the excess contribution is returned to you, any earnings included in the amount returned to you should be added to your taxable income on your tax return for that year. If the excess contribution is returned to you this year, for example, any earnings included in the amount returned to you should be added to your taxable income on the tax return that you file next spring.

If the excess amount is not returned to you by April 15, you could pay taxes on the amount twice – in the year the excess occurred and in the year it is returned to you.

April 15 is the generally cited date; but in years like 2018 in which taxes are due slightly later because of holidays or weekends, this deadline may be pushed back. Consult a tax professional to be sure.