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IRS Issues Updated Tax Notice for Qualified Retirement Plan Distributions

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The Internal Revenue Service (“IRS”) recently released guidance that contains two updated safe harbor notices that retirement plans may use to satisfy the requirements of the Internal Revenue Code (the “Code”) to provide an advance notice to a participant prior to the date on which the participant receives a distribution that meets the requirements for an eligible rollover distribution.  This notice is commonly referred to as the “402(f) Notice” after the relevant section of the Code that requires the notice to be provided.

The IRS guidance contains two model notices, one that may be used when distributions are not from a Roth account and a second model notice that may be used for distributions that are from a Roth account. These model notices update the prior model notices that were published in 2014.  Use of the model notices is not required but using them is deemed to satisfy the requirements of Section 402(f) of the Code.

The model notices were updated to reflect certain changes in the law since 2014 including:

  • the extended rollover deadline for qualified plan loan offsets that was changed in connection with the Tax Cuts and Jobs Act at the end of 2017;
  • the exception to the 10% additional tax under Section 72(t) for phased retirement distributions to certain federal retirees enacted as part of the Moving Ahead for Progress in the 21st Century Act (“MAP-21”) and for specified federal employees who have reached age 50 under the Defending Public Safety Employees Retirement Act (“DPSERA”); and
  • the self-certification procedures for claiming eligibility for a waiver of the deadline for making rollovers.

The model notices also include some other changes such as:

  • a clarification that the 10% additional tax under § 72(t) for early distributions applies only to amounts includable in income;
  • an explanation of how the rollover rules apply to governmental § 457(b) plans that include designated Roth accounts;
  • a clarification that the general exception to the 10% additional tax under § 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
  • a recognition of the possibility that taxpayers affected by federally declared disasters and other events may have an extended deadline for making rollover.

Employers may want to consider updating their 402(f) Notices to implement the changes made by the model notices.  A copy of the IRS guidance is available here.