Last month, the IRS published Notice 2018-74, which updated the model tax notice that is regularly referred to the “Special Tax Notice” or the “402(f) Tax Notice.” This tax notice is required to participants any time that all or a part of a distribution is eligible for rollover. The previous update to the model tax notice was made in 2014.
The changes to the model tax notice are meant to reflect legislation enacted over the past few years such as the Tax Cuts and Jobs Act of 2017, as well as incorporate other recent IRS guidance since 2014. The updated notices are not a complete overhaul of the 2014 model notices but reflect changes made since that time, including, by way of example, the following updates:
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Information regarding self-certification if a participant misses the 60-day rollover deadline (as provided in Revenue Procedure 2016-47).
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Changes relative to qualified plan loan offsets (on or after January 1, 2018) and the time a participant has to complete a rollover, including an explanation that participants may have until their tax return due date, including extensions.
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Clarifications that certain exceptions to the 10 percent excise tax on early distributions may not apply to distributions from IRAs.
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Notice to participants that they may have special rollover rights if they were affected by a federally declared disaster (or similar event).
Notice 2018-74, like prior guidance, includes the model notices to be provided whenever distributions are not from a designated Roth account and for distributions from a designated Roth account. It also includes explanations for plan sponsors that simply want to supplement the 2014 model notice and not necessarily replace it. Regardless of how a plan sponsor wants to incorporate these changes into the materials distributed to participants in connection with distributions, plan sponsors do need to update distribution packages to include the newly required notices. Fortunately, this should not be a particularly onerous task, as the 2014 notices can simply be swapped out for the notices included in Appendix A of Notice 2018-74.
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