IRS Updates Roth Rollover Notices
The IRS has amended the safe harbor explanations provided with eligible rollover distributions to accommodate recent guidance on in-plan Roth rollovers and the allocation of taxable amounts.
Notice 2014-74 amends the two safe harbor explanations provided in Notice 2009-68 — explanations that are required to be provided to recipients of eligible rollover distributions.
Amendments to the safe harbor explanations reflected in Notice 2014-74 relate to:
- allocation of pre-tax and after-tax amounts;
- distributions in the form of in-plan Roth rollovers; and
- “certain other clarifications” to the two safe harbor explanations.
Part A contains amendments to the safe harbor explanation for payments not from a designated Roth account and Part B contains amendments to the safe harbor explanation for payments from a designated Roth account.
The IRS notes that the amendments to the safe harbor explanations, as well as model notices included with the IRS Notice, may be used for plans that apply the guidance in section III of Notice 2014-54, 2014-41 I.R.B. 670, with respect to the allocation of pretax and after-tax amounts.
The IRS cautions that while the updated safe harbor explanations provided in this notice can be used by plan administrators and payors to satisfy Code Section 402(f), the updated explanations will not satisfy Section 402(f) to the extent the explanations are no longer accurate because of a change in the relevant law occurring after Dec. 8, 2014. The instructions in Notice 2009-68 on how to use the safe harbor explanations continue to apply.
Plan sponsors and administrators should review their rollover election forms to ensure that participants are able to clearly indicate where they wish the taxable and non-taxable portions of their distributions to be sent. Processes regarding Form 1099-R preparations may need to be revised to allow for the designation of allocated amounts to different retirement accounts. Additionally, participant rollover and tax distribution notices based on the IRS model notice will need to be revised to describe the new permitted allocation of after-tax contributions and Roth contribution earnings with direct rollovers. Summary plan descriptions that include descriptions of the prior rollover rules on the allocation of taxable and non-taxable distribution amounts may need to be revised as well.