Rollover Distributions: Updated Model Notices (article)
A qualified retirement plan allows individuals to save money on a tax-favored basis. Generally, at the point of distribution, contributions and earnings thereon are subject to tax. In certain circumstances, the tax-favored savings can be rolled over to another tax-favored vehicle. IRC Section 402(f) requires that the plan provide individuals with a notice explaining the consequences of various distributions and rollover opportunities.
Until recently, if an account included both tax-favored and after-tax money, the distribution(s) included a proportionate share of both types of money. The law now allows like money to be distributed; thus, improving the ability to continue tax-favored strategies (see last month’s Benefit Beat article, Are your Rollover Notices Current?).
On November 24, 2014, the IRS issued Notice 2014-74. This guidance includes two updated model rollover notices that can be used to satisfy the obligation to notify participants about available options. One model notice contains appropriate language to be used for payments that are not derived from a designated Roth account and explains how the distribution could be rolled over to an IRA or an employer plan. The other model notice provides an explanation of the rollover rules applicable when a distribution is derived from a designated Roth account. If an individual is to receive both types of money, it is anticipated that both notices would be provided.
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