IRS Updates Safe Harbor Explanations
The IRS has updated two safe harbor explanations for retirement plans to provide to participants who receive an eligible rollover distribution, that is, a distribution that can be rolled over from one “eligible retirement plan” to another, including IRAs, qualified plans, 403(b) annuities, and governmental deferred compensation plans. The guidance, in Notice 2014-74, supersedes Notice 2009-68 and reflects changes in the law since September 28, 2009.
The safe harbor notices satisfy the statutory requirement that plan administrators provide participants with a written explanation of their options for rolling over distributions. There are separate explanations for rollovers to a Roth account and a non-Roth account. Rollovers from a retirement plan to a Roth Account will generally be taxable, while rollovers to a non-Roth account will not be taxable.
Changes in law
The updates to the explanations reflect two changes in the law. One change permits retirement plans that include a qualified Roth contribution program to provide for rollovers to designated Roth accounts in the same plan, including rollovers of amounts that would not normally be distributable from the plan.
The other change gives greater flexibility to retirement plan participants to allocate pretax and after-tax amounts among plan distributions and rollovers to multiple destinations, such as retirement plans, IRAs, and the participant. This flexibility enables participants to reduce the tax impact of multiple distributions by allocating pretax amounts to pretax accounts, and after-tax amounts to after-tax accounts.