IRS Releases Rollover Guidance Addressing Plan Loan Offsets, Self-Certification for Late Rollovers

The IRS has issued Notice 2018-74 that modifies existing safe harbor language for rollover option explanations required of retirement plans when a participant requests a distribution. Internal Revenue Code Section 402(f) requires that participants in these plans receive a notice of rollover options and tax treatment at such times.

The safe harbor language modifications now provided in Notice 2018-74 take into account the new extended rollover period for plan loan amounts that are offset when a plan is terminated, or when a participant ceases being employed by the sponsor of the retirement plan. Under such circumstances, an affected individual may make up and roll over such offset loan amount up to, and including, his individual income tax return deadline for the distribution year, including filing extensions.  This option was provided by the Tax Cuts and Jobs Act, which is tax reform legislation enacted in December 2017.

Also addressed in Notice 2018-74 is the ability of an individual to self-certify their right under special circumstances to an extension of the normal 60-day time period to complete an indirect rollover from their plan to an IRA or to another employer plan.


IRS Releases Tax-Related Deadline Extension for Hurricane Florence Victims

The IRS has released two news items—News Release IR-2018-187 and a Help for Victims of Hurricane Florence webpage—describing tax-related deadline relief available to victims of Hurricane Florence, including those automatically eligible for that relief.

Currently, the announced deadline relief applies only to the North Carolina counties of Beaufort, Brunswick, Carteret, Craven, New Hanover, Onslow, Pamlico and Pender. But the IRS postings indicate that if the relief is extended to other areas, the same privileges will apply. Under this guidance, covered tax-related deadlines that fall on or after September 7, 2018, and on or before January 31, 2019, are extended to January 31, 2019.

The relief applies specifically 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 who was 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 866-562-5227 to request relief.

IRS Notes Changes in Form 5558 for Seeking Form 5500, 8955-SSA, 5330 Filing Extensions

The IRS has posted a September 2018-dated version of Form 5558, Application for Extension of Time to File Certain Employee Plan Returns. The form is used to request an extension of time to file Form 5500, Annual Return/Report of Employee Benefit Plan, the short Form 5500-SF, and Form 5500-EZ filed by owner-only plans. It is also filed to request filing extensions for Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits, and Form 5330, Return of Excise Taxes Related to Employee Benefit Plans.

The What’s New section on the updated form notes that a separate Form 5558 must be filed for each type of return for which an extension is being sought (as opposed to one Form 5558 to request several different return filing extensions). Also noted is that a signature is required when seeking an extension to file Form 5330. No signature is required when requesting a filing extension for Forms 5500 or 8955-SSA.

Retirement Spotlight: How Employers Can Help Employees Pay Off Student Loans and Save for Retirement

$1.3 trillion…that’s how much student loan debt Americans had incurred by the end of June 2017. During that same time period, the Pew Research Center estimates that 37 percent of adults ages 18 – 29 had outstanding student loans[1].

As these statistics show, paying for college doesn’t just end at graduation; it can go on for years. Getting younger employees to save for retirement is already challenging. And for those facing crippling student loan debt, it may be impossible. In response to this growing financial crisis, some employers have found a way to help employees pay off their student loan debt and save for retirement.

New Solution Found in IRS Guidance

On August 17, 2018, the IRS released private letter ruling (PLR) 201833012, which allows a proposed employer 401(k) plan feature to be associated with employees’ student loan payments.

Under the proposed 401(k) plan feature, if an employee affirmatively elects to participate in the employer’s student loan benefit program and makes a student loan payment equal to at least two percent of her compensation during a pay period, the employer will make a nonelective contribution (also known as a “profit sharing contribution”) of five percent of that pay period’s compensation to the employee’s 401(k) plan account.

Some in the media have mistakenly referred to this proposed nonelective contribution as a “matching contribution”.  Although the PLR’s proposed contribution formula would be identical to the 401(k) plan’s current matching contribution formula (i.e., all eligible employees who defer at least two percent earn a matching contribution of five percent), a matching contribution is defined as an employer contribution made on behalf of an employee who makes a 401(k) plan deferral contribution. Under the PLR, the proposed contribution would be made only if an employee made a student loan payment—not a 401(k) plan deferral contribution.

The Best of Both Worlds

The PLR clarifies that an employee who participates in the student loan benefit program could simultaneously defer her salary into the 401(k) plan, and—if deferring at least two percent—earn the 401(k) plan’s five percent matching contribution during those pay periods when she chooses not to make a student loan payment.

Example: Jane Smith, age 28, earns $36,000 per year and gets paid $1,384.62 every two weeks. Jane also owes $47,000 on her student loan and is enrolled in her employer’s student loan benefit program. On September 7, 2018, Jane makes a $27.69 student loan payment (2% of $1,384.62). She also makes a 2% salary deferral ($27.69) to her 401(k) plan account. Jane’s employer will make a $69.23 nonelective contribution to her 401(k) plan account for the student loan payment, but will not make a matching contribution for the salary deferral. On September 21, 2018, Jane does not make a student loan payment, but does make another 2% salary deferral to her 401(k) plan account. Therefore, Jane’s employer will make a 5% matching contribution (based on her salary deferral) to her 401(k) plan account.

Clarification on Open Questions

The PLR states that the proposed nonelective contribution is subject to plan qualification rules including—but not limited to—eligibility and contribution rules as well as coverage and nondiscrimination testing. The PLR also mentions that because receipt of the nonelective contribution is contingent upon the student loan payment and not upon an employee deferring (or not deferring) into the employer’s 401(k) plan, there is no conflict with the contingent benefit rules. (See Internal Revenue Code Section 401(k)(4)(A).)

Next Steps – How Can Other Employers Make Similar Contributions?

The student loan benefit program described in the PLR is just one way employers may design their retirement plan to simultaneously encourage repayment of student loans and help employees save for retirement. Employers who are interested in implementing a student loan benefit program similar to that described in the PLR should consider visiting with their attorney to determine whether to proceed because a PLR may be relied upon only by the party to whom it is issued.

If a decision to amend the plan to incorporate such a program is made, the employer should consult its plan record keeper or third-party administrator to discuss available options. The easiest path for an employer with access to pre-approved plan documents is to have a customized volume submitter document prepared on its behalf. If an employer is flexible in how its program is designed, there may be other options (e.g. new comparability allocation formulas) that will allow the employer to satisfy its objective.

[1]Anthony Cilluffo, “5 Facts About Student Loans”, Pew Research Center, August 24, 2017, accessed August 23, 2018,

Click here to view a printable version.


IRS Issues Proposed Regulations and Notice on Pass-Through Income Taxation

The IRS has released proposed regulations for determining business tax deductions for certain non-corporate enterprises (e.g., sole proprietorships, partnerships, S corporations) which pass through business income to an owner’s individual income tax return.

The Tax Cuts and Jobs Act of 2017 (federal tax reform legislation) altered the taxation not only of corporations, but also of such pass-through-taxed business entities. These businesses generally can deduct 20 percent of their qualified business income. These regulations are intended to aid in determining this tax deduction, which will be available to eligible taxpayers for the first time when filing their 2018 tax returns.

In addition to the proposed regulations, the IRS has also issued Notice 2018-64, which contains a proposed revenue procedure that provides guidance on methods for calculating W-2 wages for such business owners receiving pass-through income, and determining their tax obligations under the tax reform provisions.

Tax-Related Deadline Relief for California Wildfire Victims

The IRS has issued News Release CA-2018-11 announcing tax-related deadline relief for certain California residents who are victims of recent wildfires. In addition to postponement of tax return deadlines falling within dates identified in the news release, the relief includes postponement of deadlines for completing certain time-sensitive tax-related acts specified in Treasury Regulation 301.7508A-1(c)(1).

These acts include completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under this regulation. For those who qualify, such deadlines falling on or after July 23, 2018, and on or before November 30, 2018, are postponed to November 30, 2018.

The area identified as directly qualifying for relief is currently limited to Shasta County. The relief applies specifically to residents of the identified area, 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 who is injured or killed as a result of the disaster events is also entitled to deadline relief.

Affected taxpayers who reside or have a business located outside the covered disaster area are required to call the IRS disaster hotline at 1-866-562-5227 to request relief to which they feel they may be entitled.


Final Regulations Published on Automatic Extension of Time to File Certain Information Returns

Published in the August 3, 2018, Federal Register are final regulations providing rules on the automatic and non-automatic extensions of time to file certain information returns. Initially proposed in August 2015, the regulations sought to remove the automatic 30-day extension—obtained by filing Form 8809, Application for Extension of Time to File Information Returns—of time to file the Form W-2 series (excluding Form W-2G, Certain Gambling Winnings), replacing it with an additional, non-automatic 30-day extension. This non-automatic extension would require filers to submit requests for the extension to the IRS, subject to approval (whereas filing Form 8809 results in an automatic extension). The final regulations expand the list of forms subject to the updated non-automatic extensions to include forms reporting nonemployee compensation (i.e., Form 1099-MISC, Miscellaneous Income).

Forms Retaining Automatic Extension

Forms retaining the automatic extension include Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, forms that report employee compensation in the Form 1099 series (including Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.), and forms in the Form 5498 series (including Form 5498, IRA Contribution Information). The final regulations are effective as of August 3.

Following is the complete list of forms mentioned in the final regulations and whether they are allowed the automatic extension.

Automatic 30-day extension retained

Form W-2G

Form 1042-S

Form 1094-C

Form 1095-B

Form 1095-C

Form 3921

Form 3922

Form 8027

Form 1097 series

Form 1098 series

Form 1099 series (for forms reporting employee compensation)

Form 5498 series


Non-automatic extension

1099-MISC (reporting of nonemployee compensation)

Form W-2 series (excluding Form W-2G)

IRS Releases 2018 Form 1099-R for Reporting Retirement Plan Distributions

The IRS has released the finalized version of the 2018 tax year Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. The form reports distribution amounts from retirement savings arrangements and certain other investments, as well as the associated reasons or circumstances for distributions (e.g., early, normal or death distributions).

One notable change is the addition of Code M for certain retirement plan loan amounts that are offset and treated as distributed. Under the Tax Cuts and Jobs Act of 2017, a retirement plan loan that is offset due to plan termination or the plan participant’s separation from employment has an extended time period during which it may be made up and rolled over to an IRA or another employer-sponsored retirement plan. That extended deadline is the individual’s tax return filing deadline for the year of offset, including any tax filing extension.

Earlier this month, the Instructions for Forms 1099-R and 5498 were released. The IRS also released an updated version of the 2018 General Instructions for Certain Information Returns.

IRS Issues Final Regulations Approving Forfeitures to Fund QNECs, QMACs

The IRS and Department of the Treasury have issued final regulations amending the definitions of qualified nonelective contribution (QNEC) and qualified matching contribution (QMAC), settling the issue of whether participant forfeitures can be used to fund QNECs and QMACs.

QNECs and QMACs are types of employer contributions to qualified retirement plans commonly used to correct certain contribution testing failures in 401(k)-type plans. Unless certain safe harbor exemptions apply, 401(k) plans generally must satisfy rules that limit the disparity between the average deferrals of highly compensated employees (HCEs) and nonhighly compensated employees (nonHCEs). Similarly, in nonsafe harbor situations, 401(k) plans must satisfy rules that limit the disparity between average matching contributions of HCEs and nonHCEs. To correct testing failures under these rules, employers can make QNECs and QMACs.

These final regulations finalize the proposed regulations issued by the IRS in January 2017, which first altered the definitions of QNEC and QMAC to allow the use of forfeitures in funding QNEC and QMAC contributions. Before 2017, the IRS and Treasury Department interpreted the 401(k) regulations in a manner that did not permit the use of participant forfeitures to fund these employer contributions.

The final regulations are scheduled to be published as early as July 20 in the Federal Register, and will take effect on that publication date.

IRS Releases 2018 Detailed Instructions for IRA Reporting

The IRS has released the 2018 tax year Instructions for Forms 1099-R and 5498. This release was much anticipated because of tax law changes resulting from the Tax Cuts and Jobs Act in December 2017 and the Bipartisan Budget Act in February 2018. The release of these detailed instructions was delayed substantially from prior years.

The following changes are included in the 2018 Instructions.

  • No recharacterizing of 2018 or later Roth IRA conversions, or 2018 or later retirement plan-to-Roth IRA rollovers
  • Special rules for victims of 2016 and 2017 natural disasters
  • New Form 1099-R reporting code for a qualified plan loan offset distribution due to severance from employment or termination of a plan
  • New Form 5498 reporting code for rollover of offset retirement plan loans
  • Special reporting for U.S. Armed Forces in designated combat zones

Although the IRS previously released the 2018 version of Form 5498, IRA Contribution Information, as of this writing, the IRS had not released the 2018 version of Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.