Qualified Birth and Adoption Distributions or QBADs

Welcome to the Retirement Learning Center’s (RLC’s) Case of the Week. Our ERISA consultants regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, Social Security and Medicare. This is where we highlight the most relevant topics affecting your business. A recent call with a financial advisor in Michigan is representative of a common question on Qualified Birth and Adoption Distributions or QBADs.

"Does the $5,000 distribution option made available by SECURE Act 1.0 for “qualifying birth or adoption” cover fertility treatments?"

Highlight of the discussion on QBADs

IRS Notice 20-68 provides guidance on Qualified Birth or Adoption Distributions (QBADs) under Section 113 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act).

Section 113 allows an eligible retirement plan to provide Qualified Birth or Adoption Distributions up to $5,000 per qualifying event. A qualified birth or adoption distribution is includible in gross income but is not subject to the 10% early withdrawal penalty.

QBADs are not considered eligible rollover distributions for purposes of direct rollover rules, notice requirement or the mandatory 20% withholding rule. An eligible retirement plan is defined as a qualified defined contribution plan under 401(a), 403(b), governmental 457(b) and IRAs but not qualified defined benefit plans.

A qualified birth or adoption distribution is any distribution of up to $5,000 from an applicable eligible retirement plan to an individual if made during the 1-year period beginning on the date on which the child of the individual is born or is legally adopted.

Conclusion

A distribution is only a qualified birth or adoption distribution if it occurs during the one year period beginning on the date the child is born or legally adopted. Fertility treatments occur before birth and don’t always result in a birth so a distribution to pay for fertility treatments before the birth of a child would not qualify for QBAD treatment.