“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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