Taxpayer (over age 60) had a duplicate substantial deferral to a solo roth 401(k) mistakenly made in 2021, and discovered in 2023. I understand that the deferral and earnings need to be distributed when permitted by the plan and that both are taxable as income. The questions are about timing, type of distribution, and calculating earnings. And concerns are both the taxpayer’s tax liability as well as any issues about plan disqualification.

1. The plan is less than 5 years old. Since the taxpayer is over 60, does that eliminate the 10% early withdrawal penalty? If not, is this appropriate justification to wait one or more years, so that the distribution is qualified? Or should the distribution be made immediately? If the distribution is delayed until it is a qualified distribution, does having a specific plan protect the plan from disqualification under the Expanded Definition of Failures Eligible for Self-Correction under Secure Act 2.0?

2. Would this be considered a refund of excess deferral or a distribution? What year would it be taxable?

3. The plan calculates gain or loss in excess deferrals through the end of the taxable year of the deferral. If this is a distribution, how should the gain be calculated? Using the Net Income Attributable formula to the date of withdrawal? Or to the end of the most recent tax year? Or to the end of 2021?

Thanks for your help.