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Hi everyone, 

I did research, and it does not find much guidance on how to handle a repay fund when it is a ROTH 401K. Below are the scenarios and questions that I am trying to resolve. 

Scenario: An employee separates and takes a total distribution of his 401(k) account balance. His total distribution consisted of $7,000 in employee Roth contributions and $1,500 in matching contributions and $1,500 in profit-sharing contributions, totaling $10,000. The employee rolled over the $7,000 in employee Roth contributions into a Roth IRA and the remaining $3,000 into a traditional IRA. The employee was 60% vested at the time and forfeited 40% of the unvested employer contributions when he took his distribution. The employee was rehired before incurring a 5 year break in service. The plan allows for the restoration of forfeited employer contributions upon full repayment of the $10,000 distribution. To repay the employer contribution portion the employee plans to roll into the plan the $3,000 from his traditional IRA. Because the IRC and the plan do not allow rollovers from Roth IRA's into a 401(k), he is planning to repay the $7,000 using personal funds.

My original thought was to return all the funds to the original account as if they had never left the plan, but in this case, the participant would benefit from the tax on the ROTH account since he is using personal funds to repay it. He also has the ROTH IRA from the distribution. 

The questions now are:

                    Can we code the $7000 of personal funds as Rollover ROTH fund?   

                    Should it be coded as Rollover as Pre-tax? If the plan only allows rollover of Pre-tax or ROTH.

                    Are there any issues or concerns for this transaction?

 

Any input will be appreciated. Thank you. 

 

                                      

 

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