@TaxMan29
Because severance is considered “earned income“, it is considered eligible for 401(k) contributions by the IRS. You will not face any federal income tax consequences for having the money deposited in your 401(k) or for rolling it over to an IRA.
It might not have been eligible under the terms of the employer‘s plan, particularly if the employer matched it. I’m not clear on what the employer wants you to do, they want you to send them money and then they will send the same amount back? Then it’s a wash. What does it matter?
Did this occur in 2021 or 2022? What are they going to report on your W-2? Did the IRA rollover occur more or less than 60 days ago? How much money are we talking about?
As things stand now, I can’t see any negative income tax consequences for you, but I don’t understand what they are proposing that you do and how that might change things down the road.
