The IRS recently issued Notice 2020-68 (the “Notice”), which contains several sets of questions and answers that provide helpful guidance regarding various provisions in the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”) and Section 104 of the Bipartisan American Miners Act of 2019 (the “Miners Act”). Specifically, the Notice addresses certain issues concerning the following provisions of the SECURE Act: The small employer automatic enrollment credit; The repeal of the maximum age for traditional IRA contributions; Participation of long-term, part-time employees in 401(k) plans; Qualified birth or adoption distributions; and Permitting excluded “difficulty of care payments” to be taken into account as compensation for purposes of determining certain retirement contribution limits. The Notice also provides guidance with respect to the reduction in minimum age for in-service distributions as provided in the Miners Act. In addition, the Notice sets forth the deadlines to amend retirement… Continue Reading
The Puerto Rico Treasury Department (“Puerto Rico Treasury”) recently issued Internal Revenue Circular Letter (“CC RI”) 20-29 extending the period to make “Special Disaster Distributions” from qualified retirement plans and IRAs from June 30, 2020 to December 31, 2020. See our prior blog post here for details regarding what distributions qualify as Special Disaster Distributions. Other provisions of previously issued CC RI 20-09 (which provides rules applicable to distributions), CC RI 20-23 (which amends CC RI 20-09 to add additional eligible expenses), and CC RI 20-24 (which removes the requirement of signing before a notary public) continue in force. A copy of CC RI 20-29 can be found here.
The New DOL Fiduciary Rule – A Return to the Old with a New Proposed Prohibited Transaction Exemption
On June 29, 2020, the DOL issued its much anticipated new “fiduciary rule” under ERISA. The new rule is meant to replace the DOL’s previous fiduciary rule (and related exemptions) which went into effect in 2016 but was vacated by the U.S. Court of Appeals for the Fifth Circuit in 2018. The new fiduciary rule is composed of two parts: (i) a final regulation which reaffirms and reinstates the five-part test for determining whether a person renders “investment advice” for purposes of ERISA (the “Reinstated Rule”), and (ii) a new prohibited transaction class exemption for investment advice fiduciaries based on the “impartial conduct standards” previously adopted by the DOL (the “Proposed Exemption”). Reinstated Rule The new rule amends the Code of Federal Regulations to reinstate the prior 1975 regulation which contained the five-part test for determining whether a financial institution or investment professional is a fiduciary for rendering “investment advice.”… Continue Reading
The Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”) was signed into law on December 20, 2019. This law will likely impact most tax qualified retirement plans, and some of the changes appear to be immediately effective. Plan sponsors should review their plans with counsel to determine what administrative modifications and plan amendments may be required. Key provisions of the SECURE Act include: • Changes to the eligibility and coverage requirements for certain long-term part-time employees. • Changes to the required minimum distribution (“RMD”) requirements, including increasing the age for RMDs from age 70½ to age 72. • Increased penalties for failures to file and/or provide certain retirement plan returns and notices, including the Form 5500, the registration statement for deferred vested participants, and the rollover notice. • Changes to rules applicable to non-elective safe harbor plans. Non-elective safe harbor plans are those that provide… Continue Reading
In Rev. Proc. 2016-47, the IRS recently announced that individuals who fail to rollover retirement plan distributions into a new retirement plan or IRA within 60 days may now self-certify to the new plan’s administrator or the IRA’s trustee that the individual qualifies for a waiver of the 60-day rollover requirement. Previously, individuals in such circumstances had to seek a private letter ruling from the IRS that they were eligible for the waiver. Under this new guidance, there are 11 reasons that support waiving the 60-day rollover requirement. The Revenue Procedure also contains a model letter individuals may use to certify they qualify for the waiver, which a plan administrator or IRA trustee may rely on, so long as they do not know the information provided by the individual is untrue. The new self-certification procedure is effective as of August 24, 2016. View Rev. Proc. 2016-47.
The general rule under Internal Revenue Code Section 408(d)(3)(A)(i) is that a participant who receives a distribution from an IRA can avoid tax on the distribution if the distribution is rolled back into an IRA within 60 days after receipt. However, this is limited to one distribution/rollover per one-year period. The IRS had issued Proposed Regulation § 1.408-4(b)(4)(ii) and IRS Publication 590, Individual Retirement Arrangements (IRAs), each providing that this limitation is applied on an IRA-by-IRA basis. However, in Bobrow v. Commissioner, T.C. Memo. 2014-21, the U.S. Tax Court held that the one distribution/rollover limit is applied on a taxpayer basis, not an IRA-by-IRA basis. This means that, in a given one-year period, a taxpayer with multiple IRAs could receive only one distribution that is rolled over back into an IRA and have it excluded from gross income. The IRS announced that it intends to follow this decision and will… Continue Reading
One provision of the Act permits participants in a defined contribution plan, such as a 401(k) plan, to convert or transfer funds from a traditional IRA account in the plan into a Roth account in the plan without penalty, if the plan so permits. The transfer would not be subject to the 10 percent penalty on early distributions, such as if the participant is under age 59½, and would not violate the prohibition on such a plan not making a distribution before certain events occur. Contributions to a traditional 401(k) account are tax-deferred with the participant paying ordinary income tax when the money is ultimately distributed in retirement. In contrast, contributions to a Roth 401(k) account are taxed upfront with the subsequent distributions in retirement made tax free. Such in-plan Roth transfers could be beneficial to plan participants who expect to retire in a higher tax bracket as well as… Continue Reading
With the increase in Medicare taxes that goes into effect in 2013 and the high likelihood of increased tax rates in one form or another as a result of the “fiscal cliff” negotiations, individuals may want to consider accelerating income into 2012 to avoid additional income tax exposure in 2013 and beyond. One way to accomplish this is through the conversion of funds in the individual’s traditional individual retirement account (IRA) to a Roth IRA. A Roth conversion may also be transacted within an employer-sponsored 401(k) retirement plan, if the plan’s terms permit it. Under this “in-plan Roth rollover,” a plan participant can transfer all or part of his vested non-Roth account to a designated Roth account within the same plan. The amount converted is subject to federal income taxation in the year of conversion (except for any non-taxable basis in the converted amount), and, therefore, the participant must have… Continue Reading