IRS Publishes PPA Distribution Changes Guidance

Notice 2008-30 includes guidance about:

Section 824 relating to rollovers from eligible plans to Roth IRAs,
Section 1004 relating to additional survivor annuity options; and,
Section 302 relating to interest rate assumptions for lump sum distributions.

Qualified Rollovers

The IRS notice said that before the PPA, Section 408A of the Internal Revenue Code provided that a Roth IRA could only accept a rollover contribution of amounts distributed from another Roth IRA, from a non Roth IRA, or from a designated Roth account described in 402A.

These rollover contributions to Roth IRAs are called “qualified rollover contributions.” A qualified rollover contribution from a nonRoth IRA to a Roth IRA is called a “conversion.”

The IRS said an individual who rolls over an amount from a nonRoth IRA to a Roth IRA must include in gross income any portion of the conversion amount that would be includible in gross income if the amount were distributed without being rolled over. For distributions before 2010, a conversion contribution is permitted only if the IRA owner’s adjusted gross income does not exceed certain limits, the tax agency said.

Section 824 of the PPA changed the definition of qualified rollover contribution in 408A of the Code to include additional plans. Under this expansion, a Roth IRA can accept rollovers from other eligible retirement plans (as defined in 402(c)(8)(B). The amendments made by Section 824 of the PPA are effective for distributions made after December 31, 2007, the IRS said.

Annuity Options

Finally, the IRS said plans subject to 401(a)(11) must provide that accrued benefits are payable, in the case of a vested participant who does not die before the annuity starting date, in the form of a qualified joint and survivor annuity (QJSA).

Section 417(b) defines a QJSA, for a married participant, as an annuity for the life of a participant with a survivor annuity for the life of the participant’s spouse which is not less than 50% and not more than 100% of the amount of the annuity payable during the joint lives of the participant and the spouse. Section 417(a) generally provides that a plan that is subject to § 401(a)(11) must permit a participant to waive the QJSA, with spousal consent, during an applicable election period, and must provide a written explanation to the participant of the terms and conditions of the QJSA.

Section 1004 of the PPA amends 417 to require a plan that is subject to 401(a)(11) to offer to participants a specified optional form of benefit as an alternative to the QJSA. The IRS said, in particular, a plan that is subject to 401(a)(11) must provide to a participant who waives the QJSA an opportunity to elect a qualified optional survivor annuity (QOSA) during the applicable election period, and must provide a written explanation to participants of the terms and conditions of the QOSA.

Section 1004 of the PPA defines a QOSA as an annuity for the life of a participant with a survivor annuity for the life of the participant’s spouse that is equal to a specified applicable percentage of the amount of the annuity that is payable during the joint lives of the participant and the spouse, and that is the actuarial equivalent of a single life annuity for the life of the participant, the IRS said. A QOSA also includes a distribution option in a form having the effect of such an annuity.

The IRS guidance is located here.