Rollover to ROTH IRA Refund from ROTH 401K due to non-discrimination Test
I have a 401K with Principal Financial through my employer.
I am 61 years old and all of my contributions are directed to a ROTH 401K.
In December I received a letter from Principal that due to a plan non-discrimination test Principal was issuing me a refund check in the amount $5,012.06. I just received another $9,000 check for the same reason so I assume the check received in December 2022 was for 2021 plan non-discrimination test and the check received in March 2023 is for 2022 plan non-discrimination test.
In both years I have been below the IRS allowed contributions into a 401K.
I called the IRS in December and asked if I could roll this into my ROTH IRA account (I opened when very young and have not been able to contribute since due to income limits).
The 1099R received for the first refund has box 7 Distribution Code 8B. 8 – “Excess contributions plus earnings/ excess deferrals (and/or earnings) taxable in 2022” B- “Designated ROTH account distribution.” I am displeased that my future backdoor rollover into a ROTH IRA is being reduced.
Is there a way to determine if it is within IRS rules to roll the check I just received into my ROTH IRA or is it disqualified?
Permalink Submitted by Alan - IRA critic on Fri, 2023-03-17 22:42
Returns of excess deferrals, excess contributions, and excess annual additions are not eligible for rollover. Any 1099Rs coded E, 8, or P also denote distributions that are not rollover eligible. A thorough listing of all distribution types that are not eligible for rollover can be found under “direct rollovers” on p 4 of the 1099R Inst.