IRS amends safe harbor explanations that are provided to recipients of eligible rollover distributions

 

The IRS has released amendments to the two safe harbor explanations in IRS Notice 2009-68 that may be provided to recipients of eligible rollover distributions from an employer plan in order to satisfy Code Sec. 402(f). The amendments reflect changes in the law occurring after September 28, 2009 and make other clarifying changes. Plan administrators and payors may use these new safe harbor explanations to satisfy Code Sec. 402(f).

The administrator of a retirement plan under Code Sec. 401(a), Code Sec. 403(a), or Code Sec. 457(b) is required to give a written explanation to recipients of an eligible rollover distribution—that is, a payment that may be rolled over to an eligible retirement plan, as defined in Code Sec. 402(c)(8)(B). The written explanation must describe the direct rollover rules, the mandatory income tax withholding rules for distributions not directly rolled over, the tax treatment of distributions not rolled over, and when distributions may be subject to different restrictions and tax consequences after being rolled over.

The Notice provides the amendments for the two safe harbor explanations and the restated safe harbor explanations that include the amendments. The first safe harbor explanation applies to a distribution that is not from a designated Roth account. The second safe harbor explanation applies to a distribution from a designated Roth account. The amendments concerning in-plan Roth rollovers apply to plans that offer in-plan Roth rollovers, including in-plan Roth rollovers of amounts not otherwise distributable. The amendments with respect to the allocation of pretax and after-tax amounts among disbursements made from a plan to multiple destinations apply to plans that use the guidance in section III of IRS Notice 2014-54.

The IRS advises that references throughout the safe harbor explanations to “IRS Publication 590, Individual Retirement Arrangements (IRAs)” should be replaced with “IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), and Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs),” as applicable, after Publications 590-A and 590-B are issued. The instructions in Notice 2009-68 on how to use the safe harbor explanations continue to apply, according to the IRS.

Source: IRS Notice 2014-74.

Visit our News Library to read more news stories.