Rollover Documentation Guidance

by | Jan 27, 2015 | Institutional Services

When individuals roll retirement accounts into their current employer’s plan, the plan administrator is generally responsible for determining whether the rollover contribution is valid and can be accepted. The IRS recently released guidance to assist plan administrators with the task. The IRS introduced two methods (Revenue Ruling 2014-9) for verifying whether a rollover contribution to a qualified plan, such as a 401(k), is valid. Note: This only applies to plans that permit rollover contributions.

Verifying a qualified plan to qualified plan rollover. A plan administrator of a profit sharing plan is attempting to determine if an incoming check representing an employee’s direct rollover contribution from a prior employer is an acceptable rollover contribution. According to the IRS guidance, the plan administrator should access the prior plan sponsor’s latest Form 5500 on the U.S. Department of Labor’s publicly available Form 5500 database on the EFAST2 web page and look at line 8a to see if there is a Code 3C. Code 3C indicates the plan is not intended to be qualified under Code Section 401, 403, or 408. If there is no Code 3C, the plan administrator may reasonably conclude that the rollover is from a plan that is qualified. (On Form 5500-SF, the administrator must look on line 9a for Code 3C.)

In addition, the administrator must check the employee’s date of birth to ensure the rollover does not include a required minimum distribution (RMD). RMDs may not be rolled over.

Verifying an IRA to qualified plan rollover. An individual requests his or her balance in a traditional individual retirement account (IRA) be transferred directly to a profit sharing plan. If the administrator receives a check payable to the plan for the employee’s benefit, and the check stub indicates the employee’s traditional IRA is the check’s source, the administrator can reasonably conclude it is an acceptable rollover.

The administrator will also want the employee to certify that the IRA distribution does not include any after-tax amounts (only pretax IRA amounts may be rolled into a qualified plan) and that he or she will not reach age 70½ (or older) by the end of the year in which the check is issued.

In cases where an employee is age 70½ or older in the year the check is issued, the plan administrator cannot conclude that RMD requirements are satisfied without obtaining additional information, such as a statement providing details that an RMD, if required, was satisfied prior to the rollover contribution check being issued. Keep in mind that if an individual has more than one traditional IRA, the RMD amounts from each IRA may be combined and the aggregated RMD amount may be taken from one (or more) IRAs.

Note: A Roth IRA may only be rolled into another Roth IRA.

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