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Notice 2009-68, 2009-39 IRB As part of its "Savings Initiative" (see Newsstand e-mail 9/9/09), IRS has issued two safe harbor explanations that may be provided to recipients of eligible rollover distributions. The first safe harbor applies to distributions that are not from a designated Roth account. The second applies to distributions from a designated Roth account. They update the safe harbors published in Notice 2002-3, 2002-1 CB 289. Background Under Code Sec. 402(f), Code Sec. 403(b)(8), and Code Sec. 457(e)(16)(B), administrators (payors in the case of Code Sec. 403(b)) of qualified plans, Code Sec. 403(a) annuities, Code Sec. 403(b) annuities, and governmental Code Sec. 457 plans must provide a written explanation to any recipient of an "eligible rollover distribution." An eligible rollover distribution is a payment that may be rolled over to an "eligible retirement plan," which includes traditional IRAs and "eligible employer plans." 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, when distributions may be subject to different restrictions and the post-rollover tax consequences. This explanation must be given within a reasonable period of time before the plan makes an eligible rollover distribution. The requirements of Code Sec 402(f) are satisfied if this explanation is provided through the use of an electronic medium that complies with the requirements of Reg. § 1.402(a)-21. This explanation should be provided only to participants who are eligible to receive distributions that are eligible rollover distributions. Reg. § 1.402(f)-1, Q&A 1-(b) provides that a plan administrator is deemed to have complied with the requirement that a Code Sec. 402(f) notice contain certain specified information if the plan administrator provides the applicable model Code Sec. 402(f) notice published by IRS. The new safe harbor explanations constitute the applicable model Code Sec. 402(f) notice for this purpose. New safe harbors Notice 2009-68 provides updated safe harbor explanations that reflect changes made to the Code that affect the information required to be provided in a Code Sec. 402(f) notice. These changes were required to be provided by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16) §§ 617 and 657, and the Pension Protection Act of 2006 (PPA, P.L. 109-280) §§ 824, 827, 828, 829, and 845. A plan administrator or payor may customize a safe harbor explanation by omitting any information that does not apply to the plan. For example, if the plan does not hold after-tax employee contributions, it would be appropriate for the section "If your payment includes after-tax contributions" in the explanation for payments not from a designated Roth account to be eliminated. Similarly, if the plan does not provide for distributions of employer stock or other employer securities, it would be appropriate for the section "If your payment includes employer stock that you do not roll over" to be eliminated. Other information may also not be relevant to a particular plan. A plan administrator also may provide additional information with the safe harbor explanation, if the information is not inconsistent with the safe harbor explanation RIA Research References: For retirement plan distribution notice requirements, see FTC 2d/FIN ¶ H-11455; United States Tax Reporter ¶ 4024.04; TaxDesk ¶ 144,053. (Source: Federal Tax Updates on Checkpoint Newsstand tab 9/11/09) |
