IRS Updates Special Tax Notice for Certain Plan Distributions:

On August 6, 2020, via Notice 2020-62, the IRS published its updated model notice that can be used to satisfy section 402(f) of the Internal Revenue Code (the “Code”). Under that section, the plan administrator of certain retirement plans (e.g., 401(k) plans and 403(b) plans) must provide a written explanation of applicable tax rules to any recipient of a plan distribution that is eligible to be rolled over to another retirement plan. As under the previous IRS model notice, Notice 2020-62 includes two model notices. The first is for distributions that are not from a Roth account, and the second is for distributions that are from a Roth account.

The new model notices incorporate changes resulting from several pieces of legislation, including the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”) and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). In particular, the new model notices add information about the following rules:

  • A new exception to the 10% penalty tax under Code section 72(t) for qualified birth or adoption distributions.
  • An amendment to Code section 401(a)(9) that increases the age for required minimum distributions to age 72, for employees born after June 30, 1949.
  • A new in-service withdrawal feature in the form of a coronavirus-related distribution made on or after January 1, 2020 and before December 31, 2020, from an eligible retirement plan to a qualified individual.

Plan administrators that engage a third-party service provider to draft their Code section 402(f) notice may wish to confirm that their provider will use the new model notices.