Corrective Distribution from 401k
I have a client who is being told they must make a corrective distribution of $13k for 2024 from his 401k because the plan failed discrimination testing.
The question is, can this amount instead be rolled over to his IRA (as 2024/2025 contributions?) If so, how would this get done?
Permalink Submitted by Alan - IRA critic on Tue, 2025-02-11 18:40
No, removal of an excess contribution is not eligible for rollover. However, the returned funds could be used to fund regular IRA contribution or 2024 or 2025, but most likely an IRA contribution would not be deductible due to income and participating in a qualified plan. Due to higher income limits for Roth contributions, it’s more likely that client could make a Roth contribution than a deductible IRA contribution.
The removed funds and any earnings on the excess amounts will be taxable in the year distributed – 2025.