Covid 19 related distribution

Hello,
Thank you for your help in advance.
A client is laid off and is considering tapping into her retirement asset.
For record keeping purposes, would it be better to take the needed distribution while the money is in her 401k?
or roll it over first to an IRA and take it?
I’d think that it’s better to have the plan sponsor keep track of termination date, distribution date, and 1099.
Would you agree?



It probably matters little if client is actually terminated or laid off. The 1099R will be the same, no special distribution code. Tax reporting is very similar, just a different portion of the 8915 E  (not yet released). In most cases if client is terminated with little chance of rehire, or would prefer not to return to same company, they would roll over the entire plan balance to an IRA anyway. They could then take CRDs up to 100k from the IRA as they need to. They would receive a direct rollover 1099R from the plan (not a CRD), and another 1099R for the total IRA CRDs.  But if they intend to return to employer later on and the plan is good, they might take the CRD directly from the plan and keep the rest in place. If creditor protection is an issue, the plan will have ERISA protection, and the state may protect IRAs in a lesser manner.  The competence of the plan administration to correctly address these constant changes efficiently is another factor that might be compared to that of the intended IRA custodian.  At some point, client may wish to take advantage of the 3 year repayment option for all or part of the CRD.



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