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Changes to Safe Harbor Notices for Recipients of Eligible Rollover Distributions

The IRS recently issued Notice 2020-62 (the ?Ç£Notice?Ç¥), which modifies the two safe harbor explanations set forth in Notice 2018-74 that plan administrators may use to satisfy the requirements under Code Section 402(f) that plans provide certain information regarding eligible rollover distributions to participants, beneficiaries, and alternate payees who are receiving distributions. The modifications to these explanations reflect recent legislative changes, including those made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), and include a new exception to the 10% additional tax for qualified birth or adoption distributions and the increase in age for required minimum distributions to age 72 for employees born after June 30, 1949. The Notice also includes an updated (i) model safe harbor notice for distributions that are not from a designated Roth account and (ii) model safe harbor notice for distributions that are from a designated Roth account. Plan… Continue Reading

Employee Compensation and Benefits Changes Under the Tax Cuts and Jobs Act

The following post is a general summary of the changes to the Internal Revenue Code made by the recently enacted Tax Cuts and Jobs Act (the ?Ç£Act?Ç¥) that affect employee compensation and benefits: Executive Compensation Updates Loss of Deduction for Compensation in Excess of $1 Million Currently, Section 162(m) of the Internal Revenue Code limits the ability of publicly held corporations to deduct annual compensation paid to a ?Ç£covered employee?Ç¥ in excess of $1 million, with an exception to this limit for certain performance-based compensation. Beginning on and after January 1, 2018, the Act amends Code Section 162(m) to eliminate the exception for ?Ç£qualified performance-based compensation?Ç¥ (which includes stock options, stock appreciation rights, and compensation paid upon the attainment of pre-established performance goals) and commissions. There is limited grandfathering relief available under the Act that preserves the deductibility of existing arrangements that pay out after 2017, provided the ?Ç£written binding… Continue Reading

IRS Releases Guidance on Qualified Retirement Plan Distributions

The IRS released proposed regulations that nullify the rule regarding allocation of amounts distributed out of designated Roth accounts to multiple destinations. Under the current rule, a distribution from a designated Roth account in a direct rollover is treated as a separate distribution from any amount paid directly to the participant. The proposed regulations eliminate this rule for distributions made on or after January 1, 2015 (or on an earlier date chosen by the participant that is on or after September 18, 2014). The proposed regulations were issued concurrently with Notice 2014-54, which permits plan participants to allocate after-tax and pre-tax amounts among multiple destinations when the funds are simultaneously dispersed from a qualified retirement plan.?á The proposed regulations can be found?áhere. ?áA copy of IRS Notice 2014-54 is available here.

IRS Issues Guidance on In-Plan Roth Rollovers

The IRS recently released Notice 2013-74, which provides guidance related to in-plan Roth rollovers of amounts not otherwise distributable under a retirement plan.?á Notice 2013-74 supplements Notice 2010-84, which provided guidance for in-plan Roth rollovers when the amount was distributable under the plan.?á Plans that elect to permit such in-plan Roth rollovers may, subject to nondiscrimination requirements, choose the types of contributions eligible for an in-plan Roth rollover, including elective deferrals in 401(k) and 403(b) plans, matching contributions, and non-elective contributions. However, such amounts remain subject to the same distribution restrictions that applied before the in-plan rollover.?á Plans wishing to adopt a discretionary amendment permitting such in-plan Roth rollovers have until the later of (i) the last day of the first plan year in which the amendment is effective or (ii) December 31, 2014, so long as the amendment is effective as of the date the plan first operates in… Continue Reading

American Taxpayer Relief Act Eases Fund Transfers from Traditional to Roth 401(k) Accounts

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.?á The transfer would not be subject to the 10 percent penalty on early distributions, such as if the participant is under age 59??, and would not violate the prohibition on such a plan not making a distribution before certain events occur.?á 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.?á In contrast, contributions to a Roth 401(k) account are taxed upfront with the subsequent distributions in retirement made tax free.?á 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

Using a Roth Conversion to Minimize Future Income Tax Exposure

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 ?Ç£fiscal cliff?Ç¥ negotiations, individuals may want to consider accelerating income into 2012 to avoid additional income tax exposure in 2013 and beyond.?á One way to accomplish this is through the conversion of funds in the individual?ÇÖs traditional individual retirement account (IRA) to a Roth IRA.?á A Roth conversion may also be transacted within an employer-sponsored 401(k) retirement plan, if the plan?ÇÖs terms permit it.?á Under this ?Ç£in-plan Roth rollover,?Ç¥ a plan participant can transfer all or part of his vested non-Roth account to a designated Roth account within the same plan.?á 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

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