Although the statute isn't clear, Notice 2020-68 D. SECTION 113 OF THE SECURE ACT Page 13 confirms that the $5,000 limit applies per child. For example, if an employee gives birth to or adopts twins, the employee can request two QBOADs (up to $10,000).
Yes, if they were born in 2022, they must be included on your tax return to qualify for the exception. If they were born in 2023 you do not qualify for the exclusion because you would have to make the withdrawal after they are born.
After the birth of a child, a parent is allowed to distribute up to $5,000 out of either an IRA or a 401(k) plan. Notice the word “after”. You are not allowed to withdraw the money prior to the child being born.
New parents have up to 12 months following the date of birth to process the distribution from their retirement accounts and avoid the 10% early withdrawal penalty.
Exceptions to the 10% additional tax apply to an early distribution from a traditional or Roth IRA that is:
- Not in excess of $5,000 and the distribution is a qualified birth or adoption distribution.
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