Money Girl How to Invest When My 401(k) Fails Nondiscrimination?
Mar 20, 2026
They explain why 401(k) contributions can get returned because of IRS nondiscrimination rules and who counts as a Highly Compensated Employee. They outline Safe Harbor plan changes you can ask your employer to adopt. They cover tax consequences of refunded pre-tax versus Roth money. They suggest Plan B savings options like HSAs, Roth IRAs, and taxable brokerage accounts.
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Listener Jay's Contributions Kept Getting Returned
- Jay reported that over seven to eight years with two employers some of his 401(k) contributions were returned after failing nondiscrimination tests.
- Laura uses Jay's experience to frame why diligent savers can get refunded when coworkers don't participate enough.
Why Retirement Plans Get Tested For Fairness
- The IRS requires workplace retirement plans to pass annual nondiscrimination tests so benefits don't disproportionately favor highly compensated employees (HCEs).
- For 2026 HCE status is anyone earning over $160,000 or owning more than 5% in 2025, and failing tests forces refunds to correct participation imbalance.
Pitch A Safe Harbor 401k To Avoid Refunds
- Ask your employer to adopt a Safe Harbor 401(k) to eliminate annual nondiscrimination testing by committing to mandatory employer contributions.
- A safe harbor match (e.g., up to 4% with immediate vesting) lets HCEs contribute the full 2026 limit $24,500 without refunds.