Options for 401k distribution due to failed ADP test

Submitted by Celva Prabu on Sun, 2021-04-18 23:34

I received a distribution check ($10k) due to my company failing the ADP test. Income for 202 is more than joint filer limit of 208k primarily due to stock sale.

Would I be able to Rollover to new ROTH IRA account to avoid the 10% penalty for the distribution?

Thanks in advance!



Submitted by Alan - IRA critic on Sun, 2021-04-18 23:42

There is no penalty on an excess 401k contribution, and in any event a distribution of the excess is not eligible for rollover. If you received the check recently for a 2020 excess contribution, the distribution is reportable in the year received (2021), not 2020. Therefore, it will increase your 2021 MAGI by 10k. Therefore, this is quite different than returning an excess IRA contribution.

Submitted by Celva Prabu on Mon, 2021-04-19 02:21

Thank you Alan for a quick and clear response !

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