President of Austin Capital Retirement Plan Services
Get Updates from Charles Leggette
Receiving Rollovers from another Qualified [?] Plan – a sticky issue simplified by IRS
One of the most bothersome, time consuming and paper driven areas of due diligence by a Plan Administrator receiving a rollover from another Plan has been ensuring that the money comes from a ‘Qualified Plan’.The IRS now will permit the receiving Plan to check the latest sending Plan’s 5500[line 8a] to confirm that the sender has not entered 3C. Details below.
Where amounts are rolled over from one qualified plan to another, the IRS ruled that the administrator of the receiving plan may reasonably rely on Form 5500 series filings by the distributing plan in evaluating whether the distributing plan is a qualified plan for rollover purposes. The Form 5500 filings are available on the EFAST2 database which can be accessed through the Labor Department’s website. The site can be searched for the most recently filed Form 5500 for the distributing plan. On that filing, if line 8a does not include code 3C (for a plan not intended to be qualified under Code Secs. 401, 403 or 408), the administrator for the receiving plan may assume the distributing plan is qualified. In the example provided, the trustee of the distributing plan issued a check to the trustee of the receiving plan for the benefit of the employee indicating that the trustee of the distributing plan treated the distribution as an eligible rollover distribution to be directly rolled over. The administrator of the receiving plan could reasonably conclude that the distribution was a valid rollover contribution, absent any evidence to the contrary, the IRS stated.
In the case of a rollover from a traditional IRA to a plan, the IRS ruled that the administrator of the receiving plan could reasonably conclude that the source of funds was an employee’s non-inherited, traditional IRA where, in the example provided, the check stub identified the source of the funds as the employee’s IRA. The administrator could also reasonably conclude the amount was intended as a rollover contribution because the check was made out to the trustee of the plan for the benefit of the employee. The employee certified that the distribution included no after-tax amounts, and that she will not attain age 70 1/2 by the end of the year of the transfer. It was therefore reasonable for the administrator to conclude the distribution could be rolled over.
In both situations, the IRS ruled, the results would be the same if there had been no check stub identifying the source of the funds, as long as the check itself identified the source of the funds. Similarly, the results would be the same if the rollover had been accomplished through a wire transfer or other electronic means, provided that the plan administrator or trustee for the distributing plan or IRA had communicated to the plan administrator for the receiving plan the same information regarding the source of the funds.
Source:IRS Rev. Rul. 2014-9