Rollover Notices Updated for Tax Reform

The rules on rollovers have changed – most recently as a part of tax reform – and the IRS has now updated the safe harbor notices.

IRS Notice 2018-74 modifies the two safe harbor explanations in Notice 2014-74 that may be used to satisfy the requirement under Section 402(f) of the Internal Revenue Code that certain information be provided to recipients of eligible rollover distributions.

Specifically, the notices have been updated to reflect legislative changes and guidance issued after Dec. 8, 2014, including the extended rollover deadline for qualified plan loan offset amounts under the Tax Cuts and Jobs Act (TCJA).

The notices have also been updated to reflect:
 

• the exception to the 10% additional tax under Code Section 72(t) for phased retirement distributions to certain federal retirees under MAP-21;
• the expanded exception to the 10% additional tax under Section 72(t) for specified federal employees who have reached age 50 under DPSERA; and
• the self-certification procedures under Rev. Proc. 2016-47 for claiming eligibility for a waiver of the deadline for making rollovers.

The first safe harbor explanation reflects the rules relating to distributions not from a designated Roth account. The second safe harbor explanation reflects the rules relating to distributions from a designated Roth account. And, in case there was any doubt, the IRS notes that both explanations should be provided to a participant if the participant is eligible to receive eligible rollover distributions both from a designated Roth account and from an account other than a designated Roth account.

Other Clarifications

The safe harbor explanations also include other clarifying modifications, such as:
 

• modifications clarifying that the 10% additional tax under Section 72(t) for early distributions applies only to amounts includable in income;
• explaining how the rollover rules apply to governmental Section 457(b) plans that include designated Roth accounts;
• clarifying that the general exception to the 10% additional tax under Section 72(t) for payments from a governmental plan made after a qualified public safety employee separates from service (if the employee will be at least age 50 in the year of the separation) is not available for payments from IRAs; and
• recognizing the possibility that taxpayers affected by federally declared disasters and other events may have an extended deadline for making rollovers.

However, the notice cautions that while the updated safe harbor explanations provided in the notice may be used by plan administrators and payors to satisfy Section 402(f), the updated safe harbor 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 Sept. 18, 2018.

The 34-page notice includes two updated safe harbor explanations (Appendix A) and instructions (Appendix B) 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.