Cares Act $100,000 Distribution Limit

Let's say there is $50 distribution fee charged to participants. Can a participant take out $100,000 (taxable distribution of $99,950 after the distribution fee) or $100,050 (taxable distribution of $100,000 after the fee)?

Thanks!

6 minutes ago, Vlad401k said:

Let's say there is $50 distribution fee charged to participants. Can a participant take out $100,000 (taxable distribution of $99,950 after the distribution fee) or $100,050 (taxable distribution of $100,000 after the fee)?

 

Thanks!

The participant is getting a distribution of $100k.  If the plan dings his account for $50, the participant is STILL getting a $100k distribution.  The fee is immaterial, because the participant is NOT taking a distribution of $100,050!

On ‎6‎/‎10‎/‎2020 at 3:11 PM, Larry Starr said:

The participant is getting a distribution of $100k.  If the plan dings his account for $50, the participant is STILL getting a $100k distribution.  The fee is immaterial, because the participant is NOT taking a distribution of $100,050!

Larry, the 1099-R (assuming no other distributions to participant in 2020) will show distribution of $100k, right? Does the participant in your view get $100k check and the $50 fee is taken from account post-distribution, or does participant get a check for $99,950?

@Luke Bailey if the account balance is $100,000, it will be a $50 fee plus a $99,950 distribution, with a 1099-R for $99,950.  If the account balance is $100,050, it will be a $50 fee, $100,000 distribution, and $100,000 1099-R.

The fee is paid by the participants account in the plan, not by the participant after the distribution has taken place.  Although I have seen one TPA try to take the fee after the amount left the recordkeeper but before it got to the participant.  It was a poor attempt to get around 404a-5 disclosed fees by not having the plan pay the fee...

If the participants account (the plan) pays the fee, it is not part of the distribution, it is treated like any other fee in the account. 

18 hours ago, Luke Bailey said:

Larry, the 1099-R (assuming no other distributions to participant in 2020) will show distribution of $100k, right? Does the participant in your view get $100k check and the $50 fee is taken from account post-distribution, or does participant get a check for $99,950?

Agree with Rather Be Golfing; but there was nothing that led us to believe that he didn't have MUCH more than $100k in his account.  So, assuming that case, it should be obvious that he gets a check for $100k, his account is dinged for $50 in addition, and his 1099R will reflect the amount of the distribution to the participant, which is the aforementioned $100k only.

14 hours ago, RatherBeGolfing said:

@Luke Bailey if the account balance is $100,000, it will be a $50 fee plus a $99,950 distribution, with a 1099-R for $99,950.  If the account balance is $100,050, it will be a $50 fee, $100,000 distribution, and $100,000 1099-R.

The fee is paid by the participants account in the plan, not by the participant after the distribution has taken place.  Although I have seen one TPA try to take the fee after the amount left the recordkeeper but before it got to the participant.  It was a poor attempt to get around 404a-5 disclosed fees by not having the plan pay the fee...

If the participants account (the plan) pays the fee, it is not part of the distribution, it is treated like any other fee in the account. 

15 minutes ago, Larry Starr said:

Agree with Rather Be Golfing; but there was nothing that led us to believe that he didn't have MUCH more than $100k in his account.  So, assuming that case, it should be obvious that he gets a check for $100k, his account is dinged for $50 in addition, and his 1099R will reflect the amount of the distribution to the participant, which is the aforementioned $100k only.

Thank you both, and that makes sense to me, but is there any guidance that nails it down? In theory, the fee should be viewed for tax purposes as paid by the tax cognizable person receiving the service. So it seems like the theoretical issue is whether the service is performed for the plan (and then allocable to the participant's account) or for the participant as recipient of the distribution. Is there any guidance that nails this down that you are aware of?