IRS Notice 2014-74 Changes Safe Harbor Explanations for Recipients of Rollover Distributions from Qualified Retirement Plans | Practical Law

IRS Notice 2014-74 Changes Safe Harbor Explanations for Recipients of Rollover Distributions from Qualified Retirement Plans | Practical Law

Internal Revenue Service (IRS) Notice 2014-74 amends the two safe harbor explanations in Notice 2009-68 for notices that must be sent to recipients of eligible rollover distributions from qualified retirement plans as required under Section 402(f) of the Internal Revenue Code. 

IRS Notice 2014-74 Changes Safe Harbor Explanations for Recipients of Rollover Distributions from Qualified Retirement Plans

by Practical Law Employee Benefits & Executive Compensation
Published on 01 Dec 2014 • USA (National/Federal)
Internal Revenue Service (IRS) Notice 2014-74 amends the two safe harbor explanations in Notice 2009-68 for notices that must be sent to recipients of eligible rollover distributions from qualified retirement plans as required under Section 402(f) of the Internal Revenue Code.
On November 24, 2014, the Internal Revenue Service (IRS) released Notice 2014-74, which amends the two safe harbor explanations in IRS Notice 2009-68 for the notices that must be provided by qualified retirement plans to all participants entitled to receive a distribution of their benefit to satisfy Section 402(f) of the Internal Revenue Code (IRC) ( (Dec. 12, 2013)). The amendments relate to:

IRS Notice 2009-68 Provides Safe Harbor Explanations for IRC Section 402(f) Notices

IRS Notice 2009-68 provides safe harbor explanations and accompanying instructions for the two separate IRC Section 402(f) notices to be sent to participants eligible for qualified retirement plan payments from either:
These safe harbor explanations are used by plan administrators and payors to satisfy the notice requirement of IRC Section 402(f).

New IRC Section 402(f) Notices Reflect Law Changes Since IRS Notice 2009-68

IRS Notice 2014-74 amends the safe harbor explanations for both IRC Section 402(f) notices for changes in the law since 2009, including:
  • In-plan Roth rollovers, which were added by IRC Section 402A(c)(4) under the Small Business Jobs Act of 2010 (for more information, see Practice Note, Roth 401(k) Plans: In-plan Rollovers).
  • IRC Section 402A(c)(4)(E), which was added by the American Taxpayer Relief Act of 2012 (ATRA). Prior to 2013, to be eligible for an in-plan Roth rollover contribution, the amount must have been eligible for distribution to the participant under the terms of the plan and the IRC. However, ATRA removes the distributable event requirement effective January 1, 2013. Therefore, an IRC Section 402(f) notice is not required for a participant making an in-plan Roth rollover of an otherwise nondistributable amount (see Legal Update, IRS Releases Guidance on In-plan Rollovers to Designated Roth Accounts in Retirement Plans).
  • The proper allocation of after-tax and pre-tax amounts between distributions made to multiple destinations, provided in IRS Notice 2014-54. This includes the removal of the current allocation rule under proposed regulations issued in conjunction with IRS Notice 2014-54, which treat a distribution made to multiple destinations as a single distribution if the distribution is made either:
    • on or after January 1, 2015; or
    • on an earlier date chosen by the taxpayer that is on or after September 18, 2014.
(see Legal Update, IRS Issues Proposed Rules on Allocation of After-tax Amounts from Roth Accounts.)
IRS Notice 2014-74 cautions practitioners that the updated safe harbor explanations will not satisfy IRC Section 402(f) to the extent that future changes in the law render them inaccurate. The instructions in IRS Notice 2009-68 on how to use the safe harbor explanations still apply.

Amendments to Safe Harbor Explanations

IRS Notice 2014-74 makes eight amendments to the safe harbor explanation for IRC Section 402(f) notices that are sent to participants eligible for payments from a traditional, non-Roth retirement plan account, including changes to sections discussing:
  • The amount that may be rolled over.
  • The 10% additional income tax on early distributions.
  • Special rules for:
    • payments that include after-tax contributions;
    • payments rolled over to a Roth IRA; and
    • rollovers to a designated Roth account in the plan (which is a new section added by the Notice).
IRS Notice 2014-74 makes four amendments to the safe harbor explanation for IRC Section 402(f) notices that are sent to participants eligible for payments from a designated Roth account, including changes to the sections on:
  • The ways to do a rollover.
  • The amount that may be rolled over.
  • The 10% additional income tax on early distributions.
For more information on Roth accounts, see Practice Note, Roth 401(k) Plans. For sample plan language for in-plan Roth rollovers, see Standard Clause, Plan Language, In-plan Roth Rollovers for 401(k) Plans.

Practical Implications

Employers that sponsor qualified retirement plans, plan administrators and employee benefit attorneys should be familiar with these new safe harbor explanations, and use them in all IRC Section 402(f) notices sent to their retirement plan participants.
To the extent an employer's 401(k) plan record-keeper or service provider is responsible for sending IRC Section 402(f) notices to plan participants, employers should confirm that these providers are using the updated safe harbor information provided in IRS Notice 2014-74.