Section 402(f) safe harbor explanations updated

Tax Hot Topics newsletter The IRS has issued Notice 2020-62 to provide updates to the Section 402(f) safe harbor explanations.

The guidance modifies the safe harbor explanations previously provided in Notice 2018-74, reflecting legislative changes made after Oct. 1, 2018, including 1) the exception to the 10% additional tax under Section 72(t) for qualified birth or adoption distributions, and 2) the increase from age 70 ½ to age 72 for minimum required distributions for employees born after June 30, 1949.

Section 402(f) requires qualified retirement plans and certain other tax-favored plans (e.g., 403(b) and governmental 457(b) plans) to provide certain information to recipients of eligible rollover distributions, and the notice includes two model safe harbor explanations for this purpose – one for distributions that are not from a designated Roth account, and the other for distributions from a designated Roth account.

The notice also confirms that COVID-19-related distributions that were added by the Coronavirus Aid, Relief and Economic Security (CARES) Act are not eligible rollover distributions, and therefore, qualified retirement plans are not required to provide a Section 402(f) notice to recipients of such distributions. A coronavirus-related distribution is any distribution from an eligible retirement plan made on or after Jan. 1, 2020, and before Dec. 31, 2020, to a qualified individual. These distributions receive special tax treatment, including not being subject to the 10% additional tax under Section 72(t). They may also be included in taxable income ratably over a three-year period and may be recontributed to an applicable eligible retirement plan.

Jeff Martin
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
+1 202 521 1554

James Sanchez
Senior Associate
Washington National Tax Office
+1 202 861 4107

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