IRS: Uncashed Payout Checks From Retirement Plans Are Still Taxable

If a person has been given a personal or business check, it is important to understand that the check has a limited period during which it is valid. Most personal checks have a maximum time frame in which they can be presented to a bank before they become stale or invalid. The standard period is usually 180 days, i.e., 6 months, from the date on which the check is issued.

DOL Rule Blocked as to One Employer, the State of Texas, Foreshadowing More Legal Challenges

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• Taking the form of a letter-based initiative, the DOL is now urging retirement plan fiduciaries to recoup amounts held by former recordkeepers or paying agents that might have been overlooked during the transition of the service provider relationship to a new vendor.
• This is because after six months, most banks and credit unions will refuse to cash checks as they consider them “stale” after this period of time has passed.
• If a person has been given a personal or business check, it is important to understand that the check has a limited period during which it is valid.
• When determining the age of a check, the bank should look at the date on the check and compare it to the date it was received.

What are Fringe Benefits?

HBL has been providing tax services, accounting services, auditing and attestation services, consulting services, and various other services since 1973. The Council expects to issue a full written report with respect to its review and recommendations in the first quarter of 2020. If you have a problem with a stale or expired check, it’s best to consult with a financial stale dated distribution checks lawyer who can advise you on the best course of action. LegalMatch.com can connect you to a lawyer who can explain the legal remedies available to you and what your best option might be. The GlobalBanks editorial team comprises a group of subject-matter experts from across the banking world, including former bankers, analysts, investors, and entrepreneurs.

DOL Expectations with Respect to Uncashed Checks

Plans can take steps to minimize the incidence of uncashed distribution checks, as well as to resolve the situations that inevitably occur. When combined with RCH’s automatic rollover service and RCH’s missing participants search service, the problem of uncashed checks will be dramatically reduced, and any uncashed checks that do arise can be quickly and effectively handled. The IRS most likely received enough questions on the timing to issue such a broad rule, Slott says. Some businesses hold on to checks received for services until a subsequent calendar year and record the money as income then, and individual taxpayers may have assumed the same practice was allowable for retirement plan distribution checks.

Articles on Uncashed Distribution Checks

However, a bank is typically only liable for honoring a check if there is an issue other than the date of the check, such as a forged signature or the check was counterfeit or fraudulent. There are a few ways you can determine if a check is stale-dated, whether you received the check or have concerns about a check you’ve written. Treasury (a federal tax refund, for example) are good for 12 months after the date they’re issued.

• While a bank can use its right to refuse the old-dated check and even return it the same to the original issues, it can also have a change of mind and even honor it for depositing the fees in the industrialist’s business account.
• The rule for the validity of checks issued by the state government can vary according to the state legislature in America.
• Some banks may do it, but they may charge a fee for depositing or cashing a stale check that is older than 6 months.
• “It would be great to have the money move right from account A to account B,” Levine says, but that isn’t always possible.
• The GAO extended to the IRS and the DOL an opportunity to review and comment on the draft GAO report prior to publication.
• When a bookkeeping or accounting professional notices that a check might become stale-dated after its period ends, he would rightly connect with the business owner and even encourage him to encash the check before its period ends.

Why Does RCH Have My Retirement Funds?

In light of this new wave of DOL letters, plan fiduciaries should consider reviewing recordkeeping and service provider agreements as well as uncashed check procedures to confirm existing processes and practices for handling uncashed checks. The letters that we have seen quote the general ERISA requirement that plan fiduciaries have an obligation to ensure participants and beneficiaries receive all funds to which they are entitled. A stale check is a check that remains undeposited or uncashed long after the date on which it was issued. It may be too old to be processed by a bank, credit union, or other financial institution. A stale check is also referred to as a “stale-dated check” or an “expired check.” The length of time that a check is considered to be valid may vary from state to state. Also, the issuers of checks sometimes note a time limit on their checks’ validity on the face of the check.

• In particular, 401(k) plan administrators should not reverse the tax withholding or reporting of the distribution when the participant receives the distribution and simply does not cash the check until a later year.
• In contrast to this, the check received from the state government is considered to be valid for 6 months.
• It prevents the other business owner who is on the client-side of the table from cashing old and new checks, thereby maintaining transparency in the business.
• The Eversheds attorneys note that the IRS ruling goes on to provide that failure to cash the check has no effect on the employer’s responsibility to withhold income tax on or report the distribution amount.
• Similarly, the participant needs to include the plan distribution as taxable income in the year in which the plan makes the distribution even if the participant fails to cash the check until a later year.
• Before trying to cash a stale-dated check, it might be a good idea to contact the bank that holds the account the check is drawn against to see what its policy is.

How to Handle Stale-Dated Checks According to the R68 Reason Code

Retirement plan administrators have an ERISA fiduciary obligation to implement a diligent and prudent process to find missing plan participants and to take additional steps to make sure participants actually receive plan distributions. Uncashed 401(k) plan distribution checks are still retirement “plan assets,” which means the 401(k) plan administrator is still subject to ERISA fiduciary standards of care, prudence and diligence related to those amounts. As a result, the IRS and DOL have increased their focus on uncashed checks and missing participants in retirement plan audits. However, what is more common is that a plan distribution check goes uncashed because the plan sent the check to what has become an incorrect mailing address, and the plan is unable to find a correct address (i.e., the participant has become a missing participant).

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