September 3, 2020

IRS Revises Rollover Notice

Code Section 402(f) requires that participants of retirement plans be provided a rollover notice, often referred to as the “402(f) notice”, at the time the individual becomes eligible for a distribution from the plan.  Generally, the rollover notice is provided not less than 30 days, but no more than 180 days prior to distribution. 

The IRS periodically revises the content of the model rollover notice.  As a result of recent statutory and law changes, the IRS updated its model language (see IRS Notice 2020-62) reflecting changes through August 6, 2020.  The IRS last issued the rollover notice in 2018 (see our prior Benefit Beat article, Updated Safe Harbor Rollover Notice Issued, Oct. 9, 2018).

Of particular note, Notice 2020-62 describes three instances in which a rollover, and hence, a rollover notice, is not available.  These provisions were enacted by the Setting Every Community Up for Retirement Enhancement (SECURE) Act (enacted on December 20, 2019) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act (enacted on March 27, 2020).  These provisions are:

  • Withdrawals for birth or adoption expenses. Individuals are allowed up to $5,000 penalty-free withdrawals from their retirement accounts to pay for qualified expenses relating to birth or adoption of a child.  Distributions used for this purpose would not be subject to the 10% early withdrawal penalty and can be repaid, even to another plan, as long as the other plan provides for the repayment.  This provision applies to distributions made after December 31, 2019.
  • Increased RMD age. The SECURE Act increased the required minimum distribution (RMD) age to age 72 for distributions required to be made after January 1, 2020 (or, age 70½ for distributions required to be made prior to January 1, 2020).
  • Coronavirus-related hardship distribution. The CARES Act relaxes the 10% early distribution penalty otherwise applicable to withdrawals from qualified retirement plans taken before age 59½. This allows “qualified individuals” (those that meet the specific definition under the CARES Act) to withdraw up to $100,000 across all plans sponsored by a control group that would not be subject to the early 10% withdrawal penalty during the period of January 1, 2020 to December 30, 2020.

The IRS provides two versions of the model notice – one version is used for distributions made from a designated Roth account, and the other is used when distributions are not made from a designated Roth account.  While a plan sponsor is not obligated to use the content of the model notice, if it chooses to do so, then the notice must be modified to reflect the specific terms and conditions of its plan.  If a plan sponsor uses its own rollover notice, it must ensure that it includes all necessary information and required provisions contained in the model notice for its individually designed notice.

The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

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