IRS Guidance on Retirement Plan Qualified Birth or Adoption Distributions

The Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) established a new in-service distribution known as a qualified birth or adoption distribution (“QBOAD”). Generally, a QBOAD is any distribution of up to $5,000 from an “eligible retirement plan” (other than a defined benefit plan), made to an individual during the one-year period beginning on the date a child of the individual is born or the legal adoption of an eligible adoptee is finalized. Eligible retirement plans include 401(k) plans, 403(a) plans, 403(b) plans, 457(b) plans, and IRAs. On September 2, 2020, in Notice 2020-68, the IRS issued guidance on QBOADs.

Among other things, this guidance provided that:

  • Each parent may receive a $5,000 QBOAD for the same child.
  • Parents may receive a separate QBOAD for separate children (including multiple births).
  • An adopted child includes an individual not yet 18 years old and individuals physically or mentally incapable of self-support.
  • A plan is not required to permit QBOADs.
  • A plan that permits QBOADs is treated as satisfying the distribution rules that apply to cash or deferred arrangements (i.e., the rules that limit the circumstances in which in-service distributions are permitted).
  • A plan may permit distributions from elective deferrals, QNECs, QMACs, and even safe harbor contributions.
  • A plan administrator may rely on a reasonable representation from an individual that the individual is eligible for a QBOAD, unless the plan administrator has actual knowledge to the contrary.
  • An eligible individual may recontribute a QBOAD back to the same plan from which the distribution was made (or to an IRA), if the individual is eligible to make a rollover to that plan.
  • To qualify as a QBOAD, an individual must include the name, age, and taxpayer identification number of the child or adoptee on the individual’s tax return for the year in which the distribution is made.
  • QBOADs are includable in an individual’s gross income, but are not subject to the 10% early distribution excise tax under Code Section 72(t).
  • A QBOAD is not treated as an eligible rollover distribution (no mandatory withholding, no rollover rights, no special tax notice, etc.).
  • Even if a plan does not permit QBOADs, an individual may still treat a qualifying distribution as a QBOAD for tax purposes.

If a plan permits QBOADs, the plan must be amended no later than the last day of the first plan year beginning on or after January 1, 2022 (December 31, 2022 for calendar year plans). However, the last adoption date for a qualified governmental plan, a public school, or a collectively bargained plan is the last day of the first plan year beginning on or after January 1, 2024. If a plan implements a QBOAD after these deadlines, the plan must be amended no later than the last day of the plan year of implementation.

Many employers delayed consideration of adding QBOADs to their plans, waiting for IRS guidance. Now that this guidance has been issued, plan sponsors should consider whether they want to add QBOAD provisions to their plans for the 2021 plan year. The QBOAD rules provide a source of previously restricted cash that new parents often need. However, it is also another new (see Coronavirus Related Distributions) rule that could work to decrease the money that individuals will need when they reach retirement age.

About the Author: Jordan Schreier is a Member in Dickinson Wright’s Ann Arbor office and Chair of the Firm’s Employee Benefits and Executive Compensation Practice Group. His practice primarily involves advising both for-profit and non-profit employers on planning and compliance issues involving all aspects of employee benefits, including welfare benefits, qualified retirement, and other deferred compensation plans. He can be reached at 734-623-1945 or and you can visit his bio here.

Practical Estate Planning Tips That Are Often Overlooked

So you have gone through all of the work to get your estate planning documents finalized, you have had your signing meeting with your attorney, and now it is time to celebrate that you are done, right? In most cases, the answer is not quite yet. There are few items that are often overlooked that are essential to truly finishing your estate plan. I have listed two of the most important items below:

  • Check Your Beneficiary Designations – Immediately after you finalize your estate planning documents, you should contact your financial advisor, retirement account administrator, insurance agent, bank, and anyone else that holds your financial assets. The reason? Making sure that these financial assets have up-to-date (and properly filled out) beneficiary designations. These forms are crucial, as they will ensure that upon your death, your financial assets transfer directly to your beneficiaries. Particularly if you have a Trust, properly funding the Trust with your financial assets is important to successfully carrying out any estate tax deferral or minimization components of your estate plan. Your attorney can walk you through the necessary steps to accomplish this final part of the process.
  • Make Sure Your Personal Property List Is Current – A lot of clients are quick to ignore their miscellaneous personal property (such as furniture, household effects, family keepsakes, etc.) because they do not necessarily think of these items as having significant monetary value. However, we have often seen that, particularly in contentious families, these items hold significant value to certain family members, and can become the source of conflict. Accordingly, I advise clients to expressly address these items in their Wills and Trusts, typically using one of the following approaches: (i) designating the beneficiary of these items directly in the Will or Trust, or (ii) designating the beneficiary of these items in a separate list referenced by the Will or Trust. I especially like the second approach, as it is more flexible and cost-efficient since the client can change the list over time without having to arrange for the attorney to formally update the estate plan.

Thinking through these items will ultimately result in getting the most benefit and value out of your estate plan. If you have any questions or concerns about finalizing your estate plan, please contact Alex Zucco in the Grand Rapids, Michigan office at 616-336-1009 or by email at, or any other member of the Dickinson Wright Trusts and Estates Practice Group.