Retirement Checks Should be Cashed Promptly

An employee was due a $900 distribution from his employer’s qualified plan.  The plan withheld income taxes and sent the employee a check for the balance.  The distribution must be included in taxable income for the year in which the check was cut.  For unknown reasons, the employee never cashed that check, nor did he attempt to roll the distribution into an IRA.

Failure to cash the check during the tax year that the distribution occurs does not avoid any income tax, the IRS holds in a new Revenue Ruling [2019-19].  The tax result would be the same if the employee kept the check, sent it back, destroyed it, or cashed it in a subsequent year. Nor does the employee’s action change the employer of withholding or reporting responsibilities. 

Receiving a distribution from a qualified retirement plan is not routine for most people, which is why they may be unfamiliar with the tax rules for such situations.  If you are uncertain about the best way to handle your distributions, you may contact me at lthompson@tckansas.com or at (785) 749-0904 X1307.