Retirement plan participants sometimes forget to cash their distribution checks, which gives rise to the question of what to do about tax withholding. The Internal Revenue Service (“IRS”) recently addressed in Notice 2019-19 what a plan sponsor should do when a distribution was required to be made.
Plan sponsors and participants should be aware that the amount of an uncashed check is still included in the participant’s gross income for the year of the distribution and the plan sponsor is still obligated to withhold taxes on Form 1099-R, whether or not the check is cashed.
It is important to note that this Notice only applies to the situation where a plan sponsor has a current address for the participant. The IRS indicated that it is still analyzing the situation of uncashed checks from an eligible retirement plan when there is a missing participant with benefits under the plan.
If you have any questions or would like more details regarding Notice 2019-19, please contact your Nyhart consultant.