IRS Guidance

IRS Releases 2019 Form 1099-R and 5498 Reporting Instruction

The IRS has released the 2019 Instructions for Forms 1099-R and 5498. These detailed instructions describe the reporting requirements for IRA and employer-sponsored retirement plan distributions, IRA contributions, rollovers, conversions, recharacterizations, and fair market values.

This follows the 2019 Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., and 2019 Form 5498, IRA Contribution Information, release earlier this month.

In addition to updating years, deadlines, figures, and guidance references, here are a few notable changes.

  • Information on how to report distributions and late rollovers (post 60-day rollovers) of retirement plan loan offset amounts that result from severance from employment or retirement plan termination.
  • Information on how to report IRA payments to state unclaimed property funds (IRA escheatment) on Form 1099-R, applicable on or after January 1, 2019.
  • A note that Forms 1099-R and 5498 can now be completed online to satisfy required reporting to recipients.

IRS Released 2019 Retirement Reporting Forms and Redesigned 2018 Tax Forms

The IRS has released the 2019 versions of Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc., and Form 5498, IRA Contribution Information, as well as the 2018 redesigned Form 1040, U.S. Individual Income Tax Return, and related schedules.

Forms 1099-R and 5498

Form 1099-R reports distributions from IRAs and employer-sponsored retirement plans, and direct rollovers between employer plans and IRAs. Form 5498 reports annual IRA, SEP, or SIMPLE IRA plan contributions, as well as rollovers, fair market value, Roth IRA conversions, if required minimum distributions are due for Traditional and SIMPLE IRA owners, and certain other information. The IRS has not yet released the separate 2019 Instructions for Forms 1099-R and 5498.

Form 1040

The IRS has released the 2018 version of Form 1040, U.S. Individual Income Tax Return, along with the 2018 Form 1040 Instructions and other accompanying schedules. Many adjustments to taxable income were formerly accounted for on a comprehensive Form 1040 in previous years, but the IRS has transitioned to a simpler basic Form 1040 with various additional schedules. The instructions indicate that Forms 1040A and 1040-EZ are no longer available for 2018 income tax reporting, and individuals who filed one of these forms in the past may now file the Form 1040.

One retirement-related change on the 2018 Form 1040 is that IRA, pension, and annuity payments, including rollovers, will be reported on Lines 4a and 4b, instead of the former Lines 15 and 16.

The 2018 Form 1040 is supplemented with six new schedules, and the schedule instructions are contained in the Form 1040 Instructions. The following new schedules will be used to claim certain additional income, tax credits, and taxes owed for retirement and other savings accounts.

  • Schedule 1, Additional Income and Adjustments to Income, will be used to claim, among other things, tax deductions for IRAs and health savings accounts (HSAs).
  • Schedule 3, Nonrefundable Credits, will be used to claim, among other things, education credits, the IRA and retirement plan savings contribution credit (saver’s credit), and certain other credits.
  • Schedule 4, Other Taxes, will be used to claim, among other things, the additional penalty taxes owed for the early distributions and excess contributions for IRAs, retirement plans, Coverdell ESAs, Archer MSAs, HSAs, and ABLE accounts.

Retirement Spotlight: IRS Moves to Mandatory Electronic Submission for Retirement Plan VCP Corrections

Employers whose retirement plans have compliance issues in need of correction through the IRS’ Voluntary Correction Program (VCP) will now have a few new and different hoops to jump through to get the IRS’ stamp of approval. The IRS has modified its VCP procedures under the Employee Plans Compliance Resolution System (EPCRS) with the release of Revenue Procedure 2018-52. It requires that submissions and VCP fee payments be made electronically on the website starting April 1, 2019.


Submitting and Paying Online

Corrections through the new procedure may be applied for beginning January 1, 2019.

  • Transition period: From January 1, 2019, through March 31, 2019, the IRS will accept either electronic submissions through or traditional paper submissions. Paper submissions that are postmarked on or after April 1, 2019, will not be accepted.
  • Starting April 1st: All VCP submissions made on or after this date must be made through

These payment rules also apply to plans assessed sanctions through the IRS’ Audit Closing Agreement Program (Audit CAP). Plans that correct failures using the Self-Correction Program (SCP) are not required to submit to the IRS or pay a fee.


A 15MB file size restriction is imposed on submissions. Submissions typically fall in the 5MB to 10MB range, but information for a submission that is above the 15MB threshold must be faxed to the IRS. Thus, a submission that is above the size restriction may need to be broken into two parts—one 15MB file sent to and the rest of the information above 15MB faxed to the IRS.


Other EPCRS Changes

Although the major change lies in how VCP corrections are submitted, Revenue Procedure 2018-52 also contains several other noteworthy updates to the IRS’ EPCRS.

  • The reference to the IRS Letter Forwarding Program as an option for locating participants and beneficiaries is removed. (Though, that service under the program was technically discontinued years ago.)
  • If the IRS deems a VCP submission deficient or determines that issuing a compliance statement approving the correction is inappropriate, it can refuse to issue a compliance statement and may close the correction case, possibly without issuing a refund for the VCP fee. The previous IRS approach was to work with plans that made incomplete submissions in order to gather the required information so that the submission could be approved.
  • A new Penalty of Perjury statement that includes a plan sponsor signature must be included with submissions. This information previously was included on Form 8950, Application for Voluntary Correction Program (VCP) under the Employee Plans Compliance Resolution System (EPCRS).
  • Form 5265, which is an acknowledgement letter for Form 8950 submissions, will no longer be filed with the submission.
  • Corrective amendments detailed in the revenue procedure now also apply to pre-approved 403(b) plans.


More to Come

Several outstanding questions remain as 2019 approaches. Details at are scarce at this time. For example, the revenue procedure does not state what plans should do if the submission is rejected—whether a second submission and fee would be required.


It is clear, however, that effective April 1, 2019, the VCP will become almost exclusively digital. The website is active as it is used for other payment purposes as well, but as of this writing, the retirement plan correction information was not yet available. Watch Industry & Regulatory News as additional guidance becomes available.


IRS Explains Reliance on Opinion and Advisory Letters for 403(b) Plans

The IRS has provided FAQs at its website that explain opinion and advisory letter reliance regarding its relatively new program under which certain employers may establish 403(b) plans using a pre-approved plan document.

Because the IRS generally is no longer issuing rulings or determination letters on individually designed plans, the importance of pre-approved plans has increased. 403(b) plans can be established as prototype or volume submitter plans.

The FAQs describe eligible employers, what opinion and advisory letters are, and the reliance on an IRS opinion or advisory letter.

IRS Updates Acts that May Be Postponed Due to Disaster, Armed Forces Service

The IRS released an updated list of tax-related time-sensitive acts that may be postponed due to federally-declared disasters or service in the Armed Forces in Revenue Procedure 2018-58.

The revenue procedure itself does not provide for any postponements. Instead, it states that postponements under Internal Revenue Code section 7508A (referring to disasters) are contingent on IRS notices or other guidance, but that postponements of acts listed under Internal Revenue Code section 7508 (referring to service in the Armed Forces) is allowed regardless of whether the IRS issues notices or other guidance. As the regulations stand now, when an individual qualifies for relief by virtue of serving in the Armed Forces in a combat zone, the time for performing tax-related acts is not postponed. So, Revenue Procedure 2018-58 contains a list of these acts, so that individuals serving in combat zones may also receive a postponement.

A partial list of notable acts that are cited in the revenue procedure follows.


Business and Individual Tax Issues

  • Indirect rollover timing (60-day requirement) from 529 plans, ABLE accounts, Coverdell ESAs
  • Distribution of excess contributions from 529 plans
  • Filing of Form 5498-QA with the IRS
  • Distribution of excess contributions from Coverdell ESAs
  • Filing of Form 5498-ESA with the IRS


Employee Benefit Issues

  • Timing requirements for loan repayments
  • Substantially equal periodic payments timing
  • IRA contribution timing
  • Indirect rollover timing (60-day requirement) from Archer MSAs, HSAs, and qualified retirement plans
  • Filing of Form 5498-SA with the IRS
  • RMDs from qualified plans
  • Distribution of qualified plan excess deferrals, excess contributions, and excess aggregate contributions
  • Plan loan offset timing
  • Qualified plan, SEP, and SIMPLE IRA contribution deadlines
  • Filing of Form 5498 with the IRS
  • Recharacterization deadlines/timing
  • Permissible withdrawal timing for EACAs and QACAs
  • Distribution of IRA excesses
  • Form 5500, 5500-SF, Form 5500-EZ, and Form 8955-SSA filing deadlines



IRA Escheatment Guidance Transition Period Extended

The IRS released Notice 2018-90, extending the transition period originally named in Revenue Ruling 2018-17 to January 1, 2020. Revenue Ruling 2018-17 addressed withholding and reporting requirements with respect to the payment of an IRA owner’s interest to a state unclaimed property fund—an action sometimes referred to as “escheatment.”

The ruling states that payments made in this manner are treated as includable in gross income and, therefore, are subject to withholding upon distribution. In addition, the distributing financial organization must report these payments on the applicable year’s Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., identifying the IRA owner as the recipient.

The revenue ruling required financial organizations to comply with the requirement the earlier of January 1, 2019, or the date it becomes reasonably practicable to comply with the requirements. Notice 2018-90 extends this period to January 1, 2020, or the date it becomes reasonably practicable to comply with the requirements.


IRS Announces Archer MSA Health Plan Limits for 2019

The IRS has announced the 2019 cost-of-living adjustments associated with Archer medical savings accounts (MSAs) along with other tax-related adjustments in Revenue Procedure 2018-57.

For taxable years beginning in 2019, high deductible health plans in the MSA context will be defined as follows.

  • A health plan that has an annual deductible that is not less than $2,350 and not more than $3,500 (for self-only coverage), with annual out-of-pocket expenses not to exceed $4,650.
  • A health plan that has an annual deductible that is not less than $4,650 and not more than $7,000 (for family coverage), with annual out-of-pocket expenses not to exceed $8,550.

The definition of “high deductible health plan” in the MSA context as defined in IRC Sec. 220(c)(2)(A)  is different from the definition of high deductible health plan associated with health savings accounts (HSAs) defined in IRC Sec. 223(c)(2)(A).


Washington Pulse: New Rules Will Govern Retirement Plan Hardship Distributions

The Treasury Department has released proposed rules which—if finalized in present form—will significantly ease access to retirement plan assets for participants who experience financial hardship. The changes are a direct result of the Bipartisan Budget Act of 2018 (BBA), enacted in February of this year.

Treasury also took this opportunity to propose related changes that stem from several other laws previously enacted and related guidance. Like most proposed regulations, these are subject to a public comment period, and the potential for a public hearing. It’s generally hoped that they will be adopted with little—if any—change, since some of the provisions included in the regulations are or will be effective before the close of the 60-day comment period that will end January 14, 2019.


The Role of Hardship Distributions

Participants may generally access their retirement assets only after a specified event or events occur (e.g., separation form service, attainment of normal retirement age). Distributions due to hardship are also available in many plans, and are intended to serve as a last resort resource for participants who experience difficult financial circumstances.


How is the Need for a Hardship Distribution Now Determined? 

Two conditions must be met. First, there must be “immediate and heavy financial need.”  Second, a distribution from the plan must be considered necessary to satisfy that financial need.

Determining financial need can currently be based on “all relevant facts and circumstances.” An option—one intended to simplify this determination for plan administrators, and actually used by most plans—makes use of six “safe harbor” expense reasons, any one of which will be deemed to meet the condition of “immediate and heavy financial need.”  These currently include medical care, principal residence purchase, education expense, preventing eviction or foreclosure, funeral expense, and repair of damage to a principal residence.

In addition, it must be determined that a hardship distribution is necessary to meet this need. Current rules require that the amount distributed not exceed the actual need, and that there are no alternative financial resources outside of the plan available to satisfy that need. The determination of whether the need can be satisfied with non-plan resources currently can be based on “all relevant facts and circumstances.”  To satisfy this facts-and-circumstances condition, an employer is permitted to rely on an employee’s “representation” that the need cannot be met with other financial resources, unless the employer “has actual knowledge to the contrary.”

There is also a safe harbor for determining the necessity of the hardship distribution. If the employee has taken all available plan distributions and loans, and is required to cease making deferrals and employee contributions to the plan for at least six months, then a hardship distribution can be “deemed necessary to meet immediate and heavy financial need.”

To sum up, if a hardship distribution is sought for one of the six above-described safe harbor reasons, and a need for the distribution is established either by facts-and-circumstances or by safe harbor means, then granting a hardship distribution will generally be considered justified.


How are the Rules Changing?

BBA made significant statutory changes relative to hardship distributions, both broadening the employee account types available, and eliminating the requirement that available plan loans be taken before granting a hardship distribution. BBA also directed the Treasury Department to make specific revisions to existing regulations governing these distributions. In general, with some exceptions, they are to be effective beginning in 2019 plan years. Together, BBA and the proposed regulations would yield the following important changes.

  • Balances in an employee’s account in addition to employee deferrals may now be distributed for hardship reasons, including qualified nonelective contributions (QNECs), qualified matching contributions (QMACs), employer ADP safe harbor and QACA safe harbor contributions, and earnings on all these amounts; plans may, but will not be required, to include these amounts in hardship distributions; effective for 2019 plan years.
  • Available plan loans need not be taken before seeking a hardship distribution, but whether to impose the requirement will remain a plan option.
  • There is no longer a requirement to suspend employee deferrals and employee contributions for at least six months; all plans must conform to this change (this will also apply to qualified reservist distributions).


Clarifications, Timing of the Proposed Changes

The BBA statutory change and directive to the Treasury Department for regulations revisions raised questions as well as providing answers. Following are some much-awaited clarifications, as well as timing details.


Suspension of Employee Deferrals for Hardship Recipients

  • As of the first day of 2019 plan years, a suspension of employee deferrals and employee contributions is not required when granting a hardship distribution; this must take effect for distributions on, or after, 1/1/2020.
  • In transition, participants whose employee deferrals and employee contributions are under a six-month suspension can resume deferring as early as the start of 2019 plan years, even if that results in a shortened suspension period; this will be a plan option, the IRS granting a transition period leading up to the mandatory change January 1, 2020, in recognition of the timing of these regulations’ release.


Provisions Related to “Deemed Immediate and Heavy Financial Need” Safe Harbors

To simplify determining whether a participant or beneficiary has an “immediate and heavy financial need,” regulations identify six “safe harbor” expenses that satisfy this condition. These proposed regulations add a seventh qualifying expense, and contain the following clarifications and revisions.

  • Federal disaster declarations: this provision would add a new safe harbor to the existing six safe harbors described previously, for “expenses and losses—including loss of income—incurred by the employee” in FEMA-declared disasters; effective for distributions on, or after, January 1, 2018.
  • Repair of damage of principal residence: the Tax Cuts and Jobs Act of 2017 (TCJA) eliminated an income tax deduction for certain personal casualty losses for tax years 2018 through 2025, except in the case of disasters declared by the Federal Emergency Management Agency (FEMA). One of the six current hardship distribution safe harbors is for repairing damage to a principal residence. Due to its dependence on the TCJA-eliminated tax code provision, this safe harbor would have been unavailable during these years, except in the case of FEMA-declared disasters. These regulations propose to retain the principal residence repair safe harbor reason uninterrupted, declaring the TCJA provision inapplicable in the case of hardship distributions.
  • Primary beneficiary safe harbor: this change would align the regulations with an earlier law change that—plan permitting—includes the hardship of an employee’s primary beneficiary—for medical, educational or funeral expenses—whether or not that is the employee’s spouse; effective for distributions on, or after, August 17, 2006.


A Simpler Standard for “Distribution Necessary to Satisfy a Financial Need”

In addition to the requirement that there be an “immediate and heavy financial need,” a hardship distribution must be found “necessary to satisfy…” that financial need. Currently, satisfying this second requirement can be “…based on all the relevant facts and circumstances…”—a potentially challenging determination—or under a safe harbor that requires suspension of employee deferrals and employee contributions, and taking available plan loans.

  • The regulations propose “one general standard” to determine that a hardship distribution is “necessary to satisfy financial need.” To satisfy this standard—which is optional for 2019 plan years, mandated as of January 1, 2020—employers will no longer be required to suspend employee deferrals and employee contributions or have employees take available loans.
  1. Under this single standard, a hardship distribution must not exceed an employee’s need, other available plan distributions must have been taken, and “the employee must represent that he has insufficient cash or other liquid assets to satisfy the financial need.” (Current regulations anticipate a participant potentially being required to liquidate an illiquid asset, such as property).
  2. Currently, a plan administrator may rely solely on such employee representations “unless the plan administrator has actual knowledge to the contrary.” Going forward—effective January 1, 2020—a plan administrator must obtain such representation.
  • In transition, the above-described employee representation is not required for hardship distributions before January 1, 2020 (this delay is described as being due to the timing of these proposed regulations).

Limitations to the Expanded Account Sources Eligible for Hardship Distribution

Before BBA, employee elective deferrals—but not QNECs, QMACs, employer safe harbor 401(k) contributions—or their earnings—were eligible for hardship distribution. (The only exception was for certain pre-1989 amounts.)  While BBA expanded the funds eligible for hardship distribution, not all impacts were initially clear.

  • While hardship distributions may—for 2019 and later plan years—include these account sources, this is proposed as a plan option, not a requirement.
  • Unexpectedly, the broadening of hardship-eligible accounts appears to include the 401(k) safe harbor plan design known as qualified automatic contribution arrangement, or QACA, in which employer contributions may require a vesting period; such unvested amounts—of course—may not be distributed.
  • While earnings in 401(k) plans may be included in hardship distributions, this is not true of 403(b) plans, because BBA did not modify an equivalent 403(b)-governing statute.
  • QNECs and QMACs in annuity-based 403(b) accounts can be distributed due to hardship, while those in 403(b)(7) custodial accounts cannot.


Special Relief for Hurricanes Florence and Michael

In addition to the ongoing relief in federally-declared disaster situations already described, these proposed regulations would offer “expedited access to plan funds” for victims of 2018 Hurricanes Florence and Michael. Relief similar to that in IRS Announcement 2017-15—regarding California wildfires—is being provided.

  • A plan may add a hardship distribution feature after the fact (by retroactive amendment), and will have temporary relief from having to follow normal hardship administrative procedures.
  • Plan administrators must, however, make a good-faith effort to comply with administrative procedures, and as soon as practicable’ obtain required documentation.
  • Timing for relief eligibility is determined by the variable, FEMA-specified dates for the areas of the country affected by these identified hurricanes.
  • Procedural relief is provided through March 15, 2019, and plans must be amended for any specially-granted hurricane-related relief no later than the timing to amend for these proposed hardship regulations.


Plan Amending

While it is possible—if unlikely—that some provisions or their effective dates could change as a result of public comments, what is known for certain is that all plans offering hardship distributions will have to be amended. Deadlines will differ depending on whether a plan uses a pre-approved document or an individual-designed document (IDD). Pre-approved plan amending will be tied to either the sponsor’s plan year or taxable year—the year the amendment is adopted or effective—and IDDs will amend by a deadline tied to IRS issuance of its Required Amendments list.


How Will the Industry Respond?

Perhaps the question could just as readily be “How has the industry responded?  Given the 2019 plan year effective date for BBA’s provisions on hardship distributions, administrative decisions had to be made, even without available guidance. These decisions had potential impacts on system programming, employee communications, and other dimensions of plan administration. For example, would employers be given the option to continue requiring the current six-month suspension of employee deferrals after granting a hardship distribution, or would this be eliminated completely?

This is but one example, added to which is the fact that some elements of the proposed regulations were entirely unanticipated. The inclusion of QACA contributions as an account type eligible for hardship distribution was generally not expected. And there was the question of how 403(b) plans should be handled compared to 401(k) plans.  Most of these and other answers are now known, though perhaps belatedly. Going forward, those who administer the plans affected by these regulations at least have a road map. Hopefully there will not be any significant detours on the road from these proposed regulations to the final guidance.


Ascensus will continue to monitor the status of these regulations, and the industry’s response to them. Visit for the latest developments.


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IRS Issues Proposed Amendments to Retirement Plan Hardship Rules

The IRS released proposed amendments in REG-107813-18 to defined contribution retirement plan hardship distribution regulations. These amendments have been drafted to reflect statutory changes contained in the Bipartisan Budget Act of 2018 and the application of hardship rules related to modifications made by the Tax Cuts and Jobs Act.

While the summary introducing these proposed amendments specifically identifies 401(k) plans, it further notes that these amendments “would affect participants in, and beneficiaries of, employers maintaining, and administrators of, plans that contain cash-or-deferred-arrangements, or provide for employee or matching contributions.” This would also include certain 403(b) plans.

The general categories identified in the proposed regulation for changes include the following.

  • Deemed Immediate and Heavy Financial Need
  • Distribution Necessary to Satisfy Financial Need
  • Expanded Sources for Hardship Distributions
  • Relief for Victims of Hurricanes Florence and Michael

The IRS is providing a 60-day comment period as described in the proposed regulation document.


Watch news for additional developments.

Hurricane Michael Disaster Relief Expanded to More Counties in Florida, Georgia

The IRS has added more Florida counties to those initially identified as eligible for tax-related deadline relief in the wake of Hurricane Michael.  Newly added is similar relief for identified counties in Georgia.

IRS News Releases FL-2018-04 and GA-2018-04 describe the relief provided in Treasury Regulation 301.7508A-1(c)(1) that applies to various tax-related acts whose deadlines can be extended by a disaster declaration. These include, for example, completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under the above-described regulation.

See the news releases for the counties that currently are included in the tax-deadline relief. The IRS often updates the disaster news releases for new counties that get added to the relief. The IRS has indicated that if the Hurricane Michael disaster declaration is further broadened by the Federal Emergency Management Agency (FEMA) to include other areas, the same relief will apply there.

For those covered by the Florida guidance, covered tax-related deadlines that fall on or after October 7, 2018, and before February 28, 2019, are extended to February 28, 2019.  In Georgia, deadlines that fall on or after October 9, 2018, and before February 28, 2019, are extended to February 28, 2019.

The automatic relief applies to residents of the identified areas, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area that is injured or killed as a result of the events is also entitled to deadline relief. Affected taxpayers who reside or have a business located outside the covered disaster areas are required to call the IRS disaster hotline at 1-866-562-5227 to request relief.