Deferred Income distribution – can I invest the distribution into a 401k plan or Roth IRA?

Terry Says

If this is treated as earned income –and it certainly looks like that is what it is — then you can use it to make a retirement plan contribution.
BUT, you must ask your employer if you are still eligible for the company 40l(k) plan for 2025. That would be up to them, and the date of your termination of employment. That would be best, because it will be the largest amount allowed. They may not want to allow it, because it will likely also require a “match” from them! But you should definitely argue that this is compensation and that you should be allowed to make the max 40l(k) contribution using this money! (For 2024, the maximum 40lk contribution by an employee over age 50 is $30,500! And the employer can match as long as the total contribution does not exceed $69,000!

(Then when you retire, you might want to roll the entire plan into an IRA. But that’s a different decision. )

If they won’t allow you to contribute to their plan in 2025, you’ll be limited to an $8,000 IRA contribution in 2025 — either a Roth or traditional. So, there’s a lot riding on this decision by the company!