IRS updates 402(f) notice safe harbor language

The IRS has updated its safe harbor Code Sec. 402(f) notice explanations for recipients of eligible rollover distributions. The updates reflect legislative changes and guidance since the IRS last updated these explanations in 2014. Notice 2014-74, I.R.B. 2014-50, 937, is modified.

Changes in the safe harbor explanations. The updated safe harbor explanations reflect the following changes—

  • the extended rollover deadline for qualified plan loan offset amounts under the Tax Cuts and Jobs Act of 2017 P.L. 115-97);
  • the exception to the 10 percent additional tax for phased retirement distributions to certain federal retirees under the Moving Ahead for Progress in the 21st Century Act (P.L. 112-14);
  • the expanded exception to the 10 percent additional tax for specified federal employees who have reached age 50 under the Defending Public Safety Employees’ Retirement Act (P.L. 114-26);
  • the self-certification procedures under Rev. Proc. 2016-47, 2016-37 I.R.B. 346, for claiming eligibility for a waiver of the deadline for making rollovers.

Additional clarifications. The safe harbor explanations also include new language that—
(1) clarifies that the 10 percent additional tax for early distributions applies only to amounts includable in income;
(2) recognizes the possibility that taxpayers affected by federally declared disasters and other events may have an extended deadline for making rollovers; and
(3) clarifies that the general exception to the 10 percent additional tax for payments from a governmental plan made after a qualified public safety employee separates from service is not available for payments from IRAs.

Explanations in two appendices. The new safe harbor notice contains these two appendices—

  • Appendix A containing two model safe harbor explanations: one for distributions that are not from a designated Roth account, and a second for distributions from a designated Roth account; and
  • Appendix B providing instructions on how to amend the safe harbor explanations contained in Notice 2014-74 to reflect the revisions included in the modified safe harbor explanations in Appendix A.

Note that the updated safe harbor explanations will not satisfy Code Sec. 402(f) to the extent the explanations are no longer accurate because of a change in the relevant law occurring after September 18, 2018. (IRS Notice 2018-74, IRB 2018-40, October 1, 2018.)

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