@dmertzI’m in a similar situation as Dan, but the different timing.
I left my prior employer in Aug 2024, and right after I left, I rolled over the Roth 401k plan I had with them to my own Roth IRA. Once I joined my new company (who allows in-plan conversions), I also began to roll my after-tax deferrals into that Roth IRA.
In Oct 2024, I received an email from my prior employer saying that they had failed their anti-discrimination testing for their 401k plans for 2023. As a result, they determined that I had made an excess contribution for 2023 and need to refund me the excess contribution, adjusted for earnings, before the end of the 2024 year. They also said that I will receive a Form 1099-R in January 2025 (from Fidelity) for income that will be included for the 2024 tax year.
In Nov 2024, I also got a letter from my custodian (Fidelity) saying that my employer had determined $x amount of excess contribution and earnings is subject to income tax for 2024 excluding Roth contributions. However, since I had rolled over my 401k account into my Roth IRA already, they cannot process the excess contribution using the balance I have in the Roth 401k account. It also said if I had rolled over the money it could mean I had an ineligible rollover contribution and I would need to take care of it.
Once I got this letter, I called Fidelity but no one has been helpful so far. They told me they had auto-issued a distribution of $x amount listed in the letter on 11/18, but I have not yet received this amount. My confusion is where the source of the money is because my plan balance was $0 before they issued the refund and they wouldn't have permission to touch my Roth IRA. So I am wondering: 1. If the check is even coming or if the system just “auto-issued” but didn’t happen since my employer retirement plan was already a $0 balance, and 2. Should I be requesting a return of ineligible excess contribution rollover from my Roth IRA as the $x should be coming from there.
Fidelity was hard to talk to on these 2 questions, and they kept telling to talk to a tax advisor instead. They couldn’t even tell me the source of the check is coming from. Would be my next steps be requesting the return from my Roth IRA for the $x amount and then making sure I’m not getting this other check?
- Regarding the $x amount in the letter, is that the exact amount I need to withdraw or is there another calculation that needs to happen based on earnings that happened while in the Roth IRA? Will I also be subject to any additional 6% excise penalties?
Also just thinking ahead, if this happens again and the company fails testing for the year 2024... Should I move some funds I contributed and invested from my new employer out of this Roth IRA to just keep them separate? (assuming that mixing the funds will result in higher taxes next year)
