Practice Management
The IRS on Aug. 6 in Notice 2020-62 issued safe harbor explanations for eligible rollover distributions.
Administrators of qualified retirement plans under Internal Revenue Code Section 402(f) must provide a written explanation of tax consequences when making distributions that are eligible for rollover. The IRS has historically provided “safe harbor” model notices upon which plan administrators may rely to satisfy that requirement. The IRS periodically updates the notice based on changes in the law; the IRS issued the last such update in Notice 2018-74, 2018-40 I.R.B. 529.
Notice 2020-62 modifies the two model notices in Notice 2018-74. Those safe harbor explanations reflect relevant law as of Sept. 19, 2018: one safe harbor is for payments not from a designated Roth account, and the other is for payments from a designated Roth account.
The revised model notices reflect certain legislative changes made after Oct. 1, 2018, including:
The revised model notices reflect certain legislative changes made after Oct. 1, 2018, including:
- the exception to the 10% additional tax under Internal Revenue Code Section 72(t)(1) for qualified birth or adoption distributions, and
- the increase to age 72 for minimum required distributions for employees born after June 30, 1949.
The safe harbor explanations also include other minor modifications to improve their clarity, including:
- adding that payments of certain premiums for health and accident insurance are not eligible rollover distributions;
- rearranging bullets for readability; and
- spelling out acronyms when first used.
The model notices as modified by Notice 2020-62 take into consideration legislative changes related to the Setting Every Community Up for Retirement Enhancement Act of 2019, (SECURE) Act (Pub. L. 116-94).
The first safe harbor explanation reflects the rules relating to distributions not from a designated Roth account; the second reflects the rules relating to distributions from a designated Roth account. Both explanations should be provided to a participant if the participant is eligible to receive eligible rollover distributions from both a designated Roth account and an account other than a designated Roth account.
Both the safe harbor explanation in Notice 2020-62 for distributions not from a designated Roth account and not from a designated Roth account meet the requirements of Section 402(f) if provided to the recipient of the eligible rollover distribution within a reasonable period of time before the distribution is made.
Notice 2020-62 will appear in Internal Revenue Bulletin (IRB) 2020-35 dated Aug. 24, 2020.
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