Can I make a deductible contribution up to the amount of Return of Excess contribution from my 401K due to ADP failure, regardless of my income?

[prubincam]

Options for a return of excess contribution due to ADP testing failure in a 401K

[DanaB27]

If your 401(k) deferral exceeded the limit, you must notify your plan administrator. If the plan permits, the excess amount will be distributed to you. 

Please be aware, if you do not take out the excess amount by April 15th, then you are taxed twice on the excess deferral left in the plan.  This happens once when you contribute it and again when you receive it as a distribution. You can't include the excess amount in the cost of the contract even though you included it in your income.

You must include the excess deferral in your wages in the year the excess deferral happened. If this was a 2023 excess deferral:

1. Login to your TurboTax Account 
2. Click "Federal" from the left side of your screen
3. Scroll down to "Less Common Income" and click "Show More"
4. Scroll down to "Miscellaneous Income, 1099-A, 1099-C" and click "Start"
5. Select "Other income not already reported on a Form W-2 or Form 1099" and click "Start"
6. On the "Did you receive any other wages?" screen answer "Yes" and click "Continue"
7. Continue until you get to the "Any other earned income" screen, answer "Yes" and click "Continue"
8. On the "Enter Source of Other Earned income" screen select "Other" and click "Continue"
9. On the "Any Other Earned Income" screen enter "2023 Excess 401(k) Deferrals" for the description, enter the amount and click "Done".

If you receive the distribution of the excess deferral and earnings by April 15th then please note for the Tax Year 2024 tax filing due April 15, 2025: 

Two 2024 Forms 1099-R will be issued reporting the excess.

• Form 1099-R with Code P in box 7 can be ignored if you reported the excess as described above in 2023. 
• However, the earnings on Form 1099-R with Code 8 in box 7 should be reported in 2024.

Are you asking if you can make traditional IRA contributions?

Yes, you can make traditional IRA contributions up to $6,500 ($7,500 if you're age 50 or older) for 2023, in addition to contributions to a work retirement account as long as you have enough taxable compensation. 

Yes, your traditional IRA contributions may be tax-deductible but the deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. Please see IRA deduction limits for details.

[Opus 17]

"regardless of income"--No.

You don't get a different limit or exception if your employer failed their non-discrimination testing so you weren't able to max out the 401k.  Your ability to make a deductible IRA contribution is based on the usual eligibility rules (income, filing status, retirement plan at work).  The maximum deductible contribution is $6500 for 2023, or $7500 if over age 50.