QBAD Distribution Limits When One Spouse Doesn’t Participate in a Retirement Plan
Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.
“Our 403(b) plan allows for qualified birth or adoption (QBAD) distributions consistent with the SECURE Act’s amendments to Internal Revenue Code section 72(t)(2). Recently, we had a plan participant request a QBAD for $10,000 related to the adoption of a child, but the plan participant’s spouse is NOT a participant in our 403(b) plan. We realize that under the SECURE Act, each spouse, individually, is eligible for a $5,000 QBAD from an eligible retirement plan, but can the plan participant take a single $10,000 QBAD from our 403(b) plan to cover both spouses? The spouse does not have a retirement plan or IRA from which to take a QBAD, which is why the participant is requesting the $10,000 distribution.”
Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:
The recent IRS Notice addressing QBADs and other Setting Every Community Up for Retirement (SECURE) Act provisions (Notice 2020-68) does not address this issue directly. On the surface, it seems to make sense that if both spouses individually are eligible for a QBAD of $5,000, then the plan participant could request a QBAD of $10,000 to cover both spouses when the his/her spouse does not participate in an eligible retirement plan. However, the $10,000 distribution is not likely to be permitted under the QBAD rules.
The Notice addresses this issue indirectly through Q&A D-7, as follows:Q. D-7: May each parent receive a qualified birth or adoption distribution up to $5,000 with respect to the same child or eligible adoptee?
A. D-7: Yes. Each parent may receive a qualified birth or adoption distribution of up to $5,000 with respect to the same child or eligible adoptee.
So each parent has the right to take his/her own $5,000 QBAD. Neither spouse has a right to take a $10,000 distribution as a QBAD for a single child. Thus, even though the other spouse in this case does not have a eligible plan/IRA from which to take a QBAD, this does not matter, as the other spouse is not permitted to “double up” on the distribution.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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