The IRS recently released Notice 2008-30, which provides guidance in Q&A-format addressing issues under the Pension Protection Act of 2006 (“PPA”), including rollovers to Roth IRAs and qualified optional survivor annuities. Highlights include:
Roth IRA Rollovers
- PPA allows Roth IRAs to accept rollovers of “eligible rollover distributions” from eligible retirement plans, including 401(k), profit sharing, 403(b) and governmental 457(b) plans.
- For 2008 and 2009, these rollovers are allowed only for individuals (including their beneficiaries) who (a) have modified adjusted gross income that does not exceed $100,000, and (b) if married, do not file a separate return.
- Individuals making such rollovers must include, in gross income, any amount that would be includable if the distribution had not been rolled over.
- No withholding is required of direct rollovers, though voluntary withholding is permitted.
- The 10% early withdrawal tax does not apply to the plan distribution being rolled over, though a subsequent distribution from the Roth IRA within 5 years of the rollover would be subject to the 10% tax.
- Plans must permit elections of direct rollovers to Roth IRAs but need not confirm that a distributee is eligible for a rollover to a Roth IRA.
Qualified Optional Survivor Annuities
- Generally beginning in 2008, defined benefit and money purchase pension plans, which are required to offer benefit payments in the form of a qualified joint and survivor annuity (a “QJSA,” consisting of a life annuity with survivor benefit of between 50% and 100%), also must provide a second annuity alternative called a “qualified optional survivor annuity” or “QOSA.”
- If the normal QJSA has a survivor benefit of less than 75%, the QOSA must be a joint and 75% survivor annuity; if the normal QJSA has a survivor benefit of 75% or more, the QOSA must be a joint and 50% survivor annuity.
- Though QOSAs must be provided immediately in 2008 in operation, as with most PPA changes, actual plan amendments are not necessary until the end of a plan’s 2009 plan year.
- A plan already providing both joint and 50% survivor and joint and 75% survivor annuities need not change its administration and need not be amended.
- A plan is not required to obtain spousal consent for a participant to waive the QJSA form of distribution and elect the QOSA form as long as the QOSA is actuarially equivalent to the QJSA.
The Notice also addresses plan amendment rules pertaining to lump sum distribution assumptions (specifically, transitioning the definitions of the “applicable mortality table” and “applicable interest rate”) and gap-period earnings, the complexities of which are beyond the scope of this article. The full Notice can be found at this link.