Rollover of top-heavy correction contributions

[sloble@crowleyfleck.com]

I recall seeing somewhere that corrective distributions (ie to comply with nondiscrimination rules) are not eligible for rollover, but as inelligble rollover distributions, they are not subject to the 20% penalty and the 10% early distribution penalty can be avoided. Is this at all correct?

The next part to my question is how this applies to top-heavy corrective distributions. A plan failed to make top heavy contributions in certain years, some former participants have distributions coming in excess of $1,000 and they may want to roll them into the same IRA or plan into which they rolled their initial distribution.

[BFree]

How is top-heaviness corrected by a distribution?

20% is withholding. See the 1099-R instrutions. Don't know about the 10%.

[sloble@crowleyfleck.com]

A few of the affected participants--who were entitled to a 3% contribution but did not get it-- are now cashed out.

[Blinky the 3-eyed Fish]

Ashley, you are confusing two different occurances. Corrective distributions for say a failed ADP or ACP test are not eligible for rollover, but you would expect that or there wouldn't be any true penalty for the excess. Making a corrective contribution for a failure to make the TH correct the first time is completely different (it's not a distribution for one thing). When it comes time for a distribution, it certainly is eligible for rollover.

[sloble@crowleyfleck.com]

Thanks--I think that clears it up. So the former participants get a top-heavy "contribution" (to a plan account), and if they elect a "distribution" (which they probably will), then it can be rolled over just like any other distribution.