Excess Contributions Cannot Be Made Because Amounts Distributed Per a QDRO

[Guest Grumpy455]

A 401(k) plan fails the ADP test. Participant S has excess contributions of $5,000 which must be distributed to him (he is the only HCE). Recently, however, a QDRO paid all but $1,000 of his account balance to his ex-spouse. His account balance is presently $1,000. Obviously, a portion of the excess contributions have been paid to the alternate payee. What to do?

[QDROphile]

Ideally, one would want to consider what the QDRO says the alternate payee should get in light of the need to distribute assets, then decide what to do.

But it may not matter if the alternate payee will not cooperate and the plan decides it is not worth going after the distributed money. One possible approach is to distribute $1000 from the participant account and advise the alternate payee that the remainder is attributed to the alternate payee's distribution, and not eligible for rollover. I would go with the idea that the participant is the recipient of all of the taxable dollars but transferred $4000 of them to former spouse pursuant to the divorce.