Hi everyone, long time lurker to the ChooseFI group and now I have my first personal question in regards to my finances. So last year I fully funded my 401 (k) for the first time and was really proud about that accomplishment. However, last week I noticed a large withdrawal from my 401 (k) - which is with Fidelity if that matters. I called right away in regards as to why that might be. I was told my corporate employer failed ADP testing and I would have to take forcible withdrawal from my 401 (k) as my contributions were consider discriminatory. They told me I would be receiving a check for an amount indicated by the IRS. From my understanding this check will count as taxable income towards 2026 correct? Is there anyway I can use the funds to rollover into an IRA even if I am still employed by my current employer? Thanks for any help/input.
New to Tax Strategies?
Read our Complete Tax Strategies Guide →ADP Withdrawal 401 (k)
Planning to retire before 59½?
Access your retirement funds early and penalty-free with this essential tax strategy.
The Roth Conversion LadderReplies (5)
George K
80 XP7 months ago
Sorry this happened, and it is wild that your employer didn't communicate any of this before you saw the funds disappear from your account. Unfortunately there's not much you can do this year, but you (and your coworkers) should be pushing your company to switch to a safe harbor 401k.
COCPAGurl
320 XP7 months ago
Yes, that happens. The tough part is determining your 2026 contributions. It could happen again unless more employees at your company start contributing to their 401(k).
Allen Hansen
327 XP7 months ago
I would guess you are an HCE, highly compensated employee and work for a smaller company. Around $160k. You will get a check for the contributions and earnings, that will be claimed on your 2026 taxes. No penalties at least. Odds are then pretty good you are over the income limits for deductible IRA contributions. Welcome to backdoor Roths!
Badger6117
63 XP7 months ago
Perfect! Yeah that was my initial gut reaction as what to do with those funds, but I figured I'd ask anyway to make sure there wasn't anything else I can do. Thanks for the quick reply!
Allen Hansen
327 XP7 months ago
I would continue to max out your contributions, make sure you get every penny of employer match, and recognize you'll do this every year until you retire. You can guess what the percentage allowed will be since it is an after the year ends discrimination testing.