IRS Updates Special Tax Notice for Retirement Plans

Employee Benefits Alert

Firm Alert

Author(s)

The Internal Revenue Service has issued Notice 2014-74, updating its safe harbor model notices for use by qualified retirement plans to satisfy the special tax notice requirement under Section 402(f) of the Internal Revenue Code relative to recipients of eligible rollover distributions. The Notice explains why the changes were made and provides updated safe harbor model notices for distributions from both non-Roth and designated Roth accounts.

In general, administrators of qualified retirement plans must provide the special tax notice to any recipient of a distribution from the plan that is eligible to be rolled over to an individual retirement account (“IRA”) (including a Roth IRA) or another qualified retirement plan. The changes announced in Notice 2014-74 to the safe harbor model notices reflect changes in applicable law since September 28, 2009, and relate primarily to plan features such as automatic enrollment, after-tax contributions, and in-plan Roth rollovers. The new safe harbor model notice for distributions from non-Roth accounts also updates tax information about rollovers to Roth IRAs.

Specifically, the new model notices include the following modifications:

  • Provide for the rollover of automatic contributions that are withdrawn upon the request of the employee within 90 days of enrollment;
  • Provide for the penalty-free distribution of amounts rolled over to an IRA to pay for certain health insurance premiums;
  • Update the summary of the tax treatment of rolled-over after-tax contributions; and
  • Update the summary of the tax treatment of rollovers to Roth IRAs.

If you have any questions about Notice 2014-74, changes to special tax notices, or any other benefits matters, please contact one of the employee benefits attorneys in the Bradley Arant Boult Cummings LLP Employee Benefits & Executive Compensation Group.