Updated Safe Harbor Rollover Notice Issued (article)
Retirement plans are required to provide information to plan participants of their rollover rights when a distribution from the plan is forthcoming. These rollover notices, as required by Code Section 402(f), must be provided not more than 180 days nor less than 30 days prior to the distribution date.
Due to recent statutory and legislative changes affecting these notices, the IRS issued updated safe harbor rollover notices by way of IRS Notice 2018-74; specifically:
- The revised notice explains the extended due date for qualified loan offset distribution. Generally, if an individual ceases making payments toward a loan from a qualified retirement plan, such as a 401(k) plan, prior to repaying the loan, the balance of the loan is generally treated as a distribution and subject to the 10% early distribution tax penalty unless the unpaid loan balance or offset is rolled over into an eligible retirement plan within 60 days. The Tax Cuts and Jobs Act enacted last year extended the deadline of the plan loan offset from 60 days to the due date, including extensions, of the participant’s tax return for the year the distribution occurs.
- The updated notice explains the self-certification that can occur in the limited instance the taxpayer has a valid excuse for missing the 60-day rollover date. This self-certification option was made available in 2016 and should already be included in rollover notices.
There are two types of safe harbor distribution notices that can be used: one for Roth distributions and one for all other plans. It is not required for plan sponsors to use these model notices; a plan sponsor can design a rollover notice specific to its plan. Appendix A of the IRS Notice incorporates the amended changes in the model rollover notice, and Appendix B provides instructions on how to amend just the safe harbor explanations in existing Section 402(f) notices
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