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Safe Harbor Procedures in Determining Valid Rollover Contributions

April 22, 2014

The IRS recently issued Revenue Ruling 2014-9.  This provides two safe harbor procedures which a plan administrator may utilize in order to have reasonably concluded that a potential rollover contribution is valid under Treasury Regulations Section 1.401(a)(31)-1.

If a plan should accept an invalid rollover contribution, the contribution will be treated as if it were valid if the following two procedures are followed: 

  • When accepting the amount from the employee as a rollover contribution, the plan administrator for the receiving plan must reasonably conclude that the contribution is a valid rollover contribution.
     
  • Subsequently, if determined that the contribution is an invalid rollover contribution, the plan administrator must distribute the amount rolled over, plus any earnings attributable thereto, to the employee within a reasonable time after such determination.

The revenue ruling provides two hypothetical examples:

Situation 1:  A rollover check from the trustee of a plan is provided to the distributee but with instructions and made payable to the new eligible retirement plan.  The old plan may be assumed to be a qualified plan if in reviewing the plan’s latest Form 5500, code 3C is not entered on line 8a of the Form 5500.  (Code 3c would indicate that it is a non-qualified plan.)  Additionally, there must be no evidence to the contrary.

Situation 2:  A rollover check from the trustee of a plan is provided to the distributee but made payable to the new eligible plan and is labeled as “IRA of (Name of distributee)”.  This shows specifically that it is not a Roth, SIMPLE or inherited IRA.  The distributee certifies that the distribution does not include any after-tax amounts and that he/she will not have attained age 70 1/2 by year end.  Under these circumstances, and with no evidence to the contrary, the plan administrator may reasonably conclude that this is a valid rollover contribution.

If you have additional questions, please contact Samantha Zahran at szahran@blumshapiro.com.

 

Disclaimer: Under U.S. Treasury Department guidelines, we hereby inform you that (1) any tax advice contained in this communication is not intended or written to be used, and cannot be used by you, for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service (or state and local or other tax authorities), and (2) no part of any tax advice contained in this communication is intended to be used, and cannot be used, by any party to promote, market or recommend any transaction or tax-related matter(s) addressed herein without the express and written consent of Blum, Shapiro & Company, P.C.

 

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