Hi,
I received severance 3 weeks after my last day of employment. The severance was equal to several weeks of pay, and was separate then my last pay check and unused PTO. My employer automatically deducted a percent of the severance to the 401k plan. Months later this employer is saying that the severance was not eligible for 401k contributions after I have already rolled the 401k to an IRA. They are asking me to send them back a check of the value of the contribution and they will then pay me a direct deposit.
1) Is the severance pay not eligible for 401k pre-tax deductions?
2) Is there a way to not be penalized by the IRS for taking money that is now in my IRA and sending it back to the employer for them to try to fix the issue?
