We received an email this morning that my wife's company's 401k plan failed the ADP test, and they are going to be sending us a few thousand dollars as a forced disbursement, which will then be taxed. This is my first time even having heard of this, so I have a couple questions.
Assuming that she has no control over the company doing what it needs to do to pass future years tests, is there anything we can do personally to avoid or lessen this?
Since the email mentioned that it would be reported as taxable income, does that mean it is coming out of her traditional 401k? We contribute to both traditional and Roth. Would switching to entirely Roth mean any future failed test disbursements would not be taxed (a 2nd time)?
All that I've seen online seem to talk about how to pass the test, but can't find much on what to do as the employee. Open to any input. Thanks
original posted by BillyMumfrey to r/personalfinance on Tue, 05 Mar 2024 15:16:26 GMT.