New Safe Harbor Rollover Explanations Consider Tax Reform Changes

The Internal Revenue Service (IRS) has issued Notice 2018-74 modifying two safe harbor explanations, previously in Notice 2014-74, for recipients of eligible rollover distributions from retirement plans.

Amended safe harbor explanations in Notice 2014-74 were issued following the IRS’ new guidance for allocating pre-tax and after-tax amounts among distributions that are made to multiple destinations from a qualified plan.

The new modifications take into consideration changes related to qualified plan loan offsets and other statutory changes.

Prior to the passage of the Tax Cuts and Jobs Act on December 22, 2017, when a participant with an outstanding loan from their defined contribution (DC) plan terminated employment, the participant had up to 60 days to repay the loan. The new law now extends that repayment period to the date the participant’s federal income tax is due for the year in which the plan loan offset occurred.

The notice describes other statutory changes affecting rollovers, including guidance issued on self-certification of eligibility for a waiver of the deadline for completing a rollover.

The notice contains two appendices.  Appendix A contains two model safe harbor explanations: one for distributions that are not from a designated Roth account, and a second for distributions from a designated Roth account.  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.