On September 5, 2009, the IRS released a substantially restructured and updated safe harbor rollover notice that is required to be provided to people who receive eligible rollover distributions from qualified plans, 403(b) annuities and governmental 457(b) plans. The safe harbor rollover notice provides a more streamlined, simplified explanation of the rollover options available to distributees. The IRS released two separate versions of the safe harbor rollover notice: one for individuals receiving distributions from a designated Roth account and another for individuals receiving distributions that are not from a designated Roth account.

Updated Rollover Notices - Background

Section 402(f) of the Internal Revenue Code requires the plan administrator of qualified retirement plans, 403(b) annuities and governmental 457(b) plans (collectively "employer retirement plans") to provide individuals receiving an "eligible rollover distribution" with a written explanation of the tax consequences of the distribution and the individual's rollover options with respect to the distribution.

Notice 2009-68, released on September 5, 2009, provides two updated versions of the safe harbor rollover notice. The revised safe harbor rollover notices were updated to reflect the changes in the law since the safe harbor notice was last revised in 2002. The revised safe harbor rollover notices also reorganized the presentation and simplified the descriptions of the rollover options that are available to distributees of an eligible rollover distribution.

A plan administrator is deemed to have complied with the requirements of Section 402(f) of the Internal Revenue Code if the administrator provides the applicable safe harbor notice published in Notice 2009-68. The safe harbor rollover notices may be customized to omit information that is not relevant to the plan (for example, if the plan does not include any employer securities, the explanation of the special tax rules applicable to employer securities may be removed).

The IRS has indicated that plans may use the safe harbor rollover notices immediately or continue to use the notices released in 2002, with appropriate modifications for changes in the law through the end of 2009.

A copy of the safe harbor rollover notices are attached to Notice 2009-68, which may be found at http://www.irs.gov/pub/irs-drop/n-09-68.pdf.

Safe Harbor Rollover Notices - Key Revised Content

  • Nonspouse Beneficiary Rollovers - Prior to January 1, 2010, employers were permitted but not required to amend their plans to allow nonspouse beneficiaries to transfer their eligible rollover distributions directly into an inherited IRA in a direct rollover. Effective January 1, 2010, all employer retirement plans must allow nonspouse beneficiaries to transfer their eligible rollover distributions to an inherited IRA in a direct rollover.

The revised safe harbor rollover notices describe the rules in effect on January 1, 2010; if your plan does not provide a nonspouse beneficiary rollover option prior to January 1, 2010, the safe harbor rollover notice should be modified to remove the nonspouse rollover provisions for distributions payable prior to January 1, 2010.

  • Roth Account Distributions - The safe harbor rollover notice applicable to distributions from a designated Roth account clarifies that a distribution eligible for rollover may only be transferred to another designated Roth account or a Roth IRA.
  • Roth IRAs May Receive Qualified Plan Rollovers – The Pension Protection Act amended the direct rollover rules to allow non-Roth eligible rollover distributions to be transferred directly into a Roth IRA. Prior to that change a distributee who wanted to make a Roth conversion election with respect to distributions from an employer retirement plan would have to roll the distribution into a traditional IRA and then convert the traditional IRA into a Roth IRA.

It is important to note that prior to January 1, 2010, a rollover to a Roth IRA from a non-designated Roth account is permitted only if the recipient's modified adjusted gross income for the year of distribution does not exceed $100,000 and, if married, the recipient files a joint return. Effective January 1, 2010, the $100,000 income and joint filing requirements no longer apply. If the safe harbor rollover notice is used for distributions made prior to January 1, 2010, the notice should be revised to describe the pre-2010 income limits for Roth conversions.

Timing of Distribution of the Rollover Notice – The rollover notice must be provided at least 30 days but no more than 180 days before the date on which the distribution is made unless the employee waives the 30 day minimum notice period.