IRS Amends Qualified Retirement Plan Rollover Safe Harbor Notices

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By Andrew J. Fawbush, Esq., Laura Miller Andrew, Esq., and  Lisa Rhein Carrasco, Esq.


Smith, Gambrell & Russell, LLP, Jacksonville, FL and Atlanta, GA

When qualified retirement plans make a distribution from the plan that is eligible to be rolled over to an individual retirement account (IRA) or another qualified retirement plan, plan administrators are required to provide a letter to the participant of their right to rollover the distribution to avoid paying taxes at time of distribution.


The IRS has recently updated its model safe harbor notices in Notice 2014-74. This notice is to be used by plan administrators of qualified retirement plans to satisfy this rollover tax notice requirement. The changes to the safe harbor notices reflect the IRS's revised position regarding the allocation of after-tax rollover amounts where distributed to more than one destination and where the distribution consists of both pre-tax and after-tax amounts.


The updated rollover notices incorporate the following:


  •   Information regarding penalty-free distributions of amounts rolled over to an IRA to pay for certain health insurance premiums;
  •   A summary of the current tax treatment of rolled over after-tax contributions; and
  •   A summary of the current tax treatment of rollovers to Roth IRAs.

By January 1, 2015, plan administrators should review their rollover election forms to ensure that participants are able to indicate where the taxable and non-taxable portions of their distributions are to be sent. Additionally, participant rollover and tax distribution notices based on the IRS model notices will need to be revised. Lastly, summary plan descriptions that include descriptions of the prior rollover rules on the allocation of taxable and non-taxable distribution amounts may need to be revised as well.


For more information, in the Tax Management Portfolios, see Bosley and Hutzelman, 370 T.M., Qualified Plans — Taxation of Distributions, Kennedy, 367 T.M., IRAs, and in Tax Practice Series, see ¶5550, Tax Aspects of Qualified Retirement Plans, ¶5610, IRAs.


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