Updated Special Tax Notice under IRC 402(f)

   Ice Miller LLP circulated a sample special tax notice on March 1, 2007.  Since then, the IRS has issued additional guidance under Notice 2008-30 and the instructions to Form 1099-R that affect the information in the special tax notice.  Unfortunately, the IRS has not issued a revised model tax notice.  Therefore, we have updated the sample to include these recent changes.  In addition, we have included a sample special tax notice prepared specifically for 457(b) plans.
 
   The attached sample notices include the following changes: 
  1. Beginning January 1, 2008, distributions to a member, surviving spouse, or alternate payee can be rolled over to a Roth IRA.  Notice 2008-30 clarified that the rollover can be either a direct rollover or a rollover completed by the recipient within 60 days of distribution.
  2. A nonspouse beneficiary is permitted to make a direct rollover to an inherited Roth IRA.  In addition, we clarified that a nonspouse beneficiary who elects to receive the distribution will not be subject to 20% mandatory withholding.
  3. A section was added regarding the election available for retired public safety officers to exclude up to $3,000 of "qualified" health insurance or long-term care insurance premiums from taxable income.
  4. An optional sentence may be used to note the interplay of any state law recognizing same-sex domestic partners with federal tax law.
  5. Rollovers of after-tax contributions are also permitted from a 403(a) plan.  This change applies only for the notice for 401(a)/403(a)/403(b) plans.
   The latest word from the IRS is that it expects to issue a revised model tax notice in June 2008.  Once the IRS issues the revised model notice, we will compare it with the sample notice to determine if any changes are necessary.  In the meantime, the attached sample notices will provide recipients of plan distributions with the most recent distribution and taxation information.
 
   If you have any questions about the special tax notice, please contact Mary Beth Braitman or Terry A.M. Mumford.
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