The IRS has updated its model Special Tax Notice (sometimes called a “402(f) Notice”) for certain changes in the law since 2009.  Employers should review their Special Tax Notices to incorporate required updates.

When a tax-qualified retirement plan allows lump-sum distributions (or installments over fewer than 10 years), the plan must allow the recipient to roll over his or her distribution to an IRA or another employer’s tax-qualified plan.  The plan administrator must provide to anyone receiving a distribution a notice–commonly called a “Special Tax Notice” or “402(f) Notice”–that describes the tax consequences of a distribution and the recipient’s rollover rights.

The IRS provides model notices that plan administrators may use to satisfy this requirement.  Until this week, however, the IRS had not updated its model notices since 2009.  Plan administrators are responsible for updating their notices for changes since the last models were published.

In Notice 2014-74, the IRS has provided updated versions of two model notices:

  • A model for distributions from a Roth account, and
  • A model for other distributions.

The new model notices reflect changes in the law since 2009 and include certain clarifications.  Among other things, the updates include information about:

  • Allocating pre-tax and after-tax amounts among distributions that are made to more than one place (e.g., when part is rolled over and part is paid to the participant in cash),
  • In-plan Roth rollovers (first introduced in 2010 and expanded in 2013), and
  • Withdrawal of automatic enrollment contributions (only for plans that provide a window for employees to withdraw unintended contributions).

We encourage employers to review their Special Tax Notices and update them as appropriate for their circumstances.  It is important to review these notices from time to time, because the IRS expects the notices to be updated for changes in the law.