401(k) plans have long been able to accept direct rollovers from other plans or IRAs. Dilemma: You weren’t always certain that new employees could roll over their account balances in the first place.
To solve this conundrum, the IRS has designed two streamlined rollover safe harbors. (Rev. Rul. 2014-9, IRB 2014-17)
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Plan-to-plan rollovers. The IRS set up two scenarios. In the first, Amy, a new employee with Acme, Inc., wants to make a direct rollover of her 401(k) plan assets from her old employer, Beta, into Acme’s plan. Acme’s plan doesn’t accept rollovers of after-tax amounts or amounts attributable to Roth 401(k) contributions. She presents a check payable “for the benefit of Amy” to Acme’s plan trustee. Attached to the check is a stub that identifies Beta’s plan. She certifies that Beta’s distribution doesn’t include after-tax contributions or Roth 401(k) contributions.
Acme’s plan administrator accesses the Department of Labor’s EFAST2 database and searches for Beta’s most recently filed Form 5500. The search reveals that Beta didn’t include code 3C on Line 8a (for a plan not intended to be qualified under tax code Section 401). Result: Acme has fulfilled its due diligence and can reasonably conclude that Amy’s rollover is a valid rollover contribution.
IRA-to-plan rollovers. In the second scenario, Amy seeks to rollover her traditional IRA into Acme’s plan. The IRA trustee issues a check payable “for the benefit of Amy” to the trustee of Acme’s plan. The stub identifies “IRA of Amy” as the source of the funds. Amy certifies that her IRA distribution includes no after-tax amounts and that she will not have attained age 70½ by the end of the year in which the check is issued. Result: Acme’s plan administrator may reasonably rely on Amy’s certifications and conclude that the source of the funds is a traditional IRA.
DUMP THE STUB: According to the IRS, check stubs are unnecessary, as long as the check identifies the source of the funds. The result would be the same if the rollover was accomplished through a wire transfer or other electronic means, provided the distributing plan or IRA trustee communicated the same information to the receiving plan’s administrator.