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)
Replies (5)
George K
3 weeks 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.
Jill Nordmann
1 month 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
1 month 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!
Join the Discussion
Sign up to reply, follow discussions, and connect with the ChooseFI community.
Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may earn compensation from card issuers when a customer clicks on a link, when an application is approved, or when an account is opened. Opinions, reviews, analyses & recommendations are the author's alone, and have not been reviewed, endorsed or approved by any of these entities. American Express is a ChooseFI advertiser.