IRS Updates 402(f) Notice Safe Harbor Language

The IRS has updated its safe harbor Code Sec. 402(f) notice explanations for recipients of eligible rollover distributions. The updates reflect legislative changes and guidance since the IRS last updated these explanations in 2014.

Changes in the Safe Harbor Explanations

First, the updated safe harbor explanations reflect the following legislative changes:

  1. the extended rollover deadline for qualified plan loan offset amounts under the Tax Cuts and Jobs Act of 2017 (P.L. 115-97);
  2. the exception to the 10% additional tax for phased retirement distributions to certain federal retirees under the Moving Ahead for Progress in the 21st Century Act (P.L. 112-141); and
  3. the expanded exception to the 10 percent additional tax for specified federal employees who have reached age 50 under the Defending Public Safety Employees’ Retirement Act (P.L. 114-26).

The guidance also updates the explanations for the self-certification procedures under Rev. Proc. 2016-47, 2016-37 I.R.B. 346, for claiming eligibility for a waiver of the deadline for making rollovers.

Additional Clarifications

In addition, the safe harbor explanations include new language that:

  1. clarifies that the 10% additional tax for early distributions applies only to amounts includable in income;
  2. recognizes the possibility that taxpayers affected by federally declared disasters and other events may have an extended deadline for making rollovers; and
  3. clarifies that the general exception to the 10 percent additional tax for payments from a governmental plan made after a qualified public safety employee separates from service is not available for payments from IRAs.

Explanations in Two Appendices

Finally, the new safe harbor notice contains these two appendices.

First, Appendix A contains two model safe harbor explanations: one for distributions from a designated Roth account, and one for other distributions.

Second, Appendix B provides instructions on how to amend the safe harbor explanations contained in Notice 2014-74 to reflect the revisions included in the modified safe harbor explanations in Appendix A.

The updated safe harbor explanations safe harbor explanations will not satisfy Code Sec. 402(f) to the extent the explanations are no longer accurate because of a change in the relevant law occurring after September 18, 2018.

Notice 2018-74

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