n-09-68.pdf

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Part III – Administrative, Procedural and Miscellaneous

Safe Harbor Explanation – Eligible Rollover Distributions
Notice 2009-68

I. PURPOSE
This notice contains two safe harbor explanations that may be provided to recipients
of eligible rollover distributions from an employer plan in order to satisfy § 402(f) of the
Internal Revenue Code (Code). The first safe harbor explanation applies to a distribution not
from a designated Roth account (as described in § 402A). The second safe harbor
explanation applies to a distribution from a designated Roth account. These safe harbor
explanations update the safe harbor explanations that were published in Notice 2002-3, 2002-
1 C.B. 289, to reflect changes in the law. These safe harbor explanations also reorganize and
simplify the presentation of the information.
II. BACKGROUND
Section 402(f) requires the plan administrator of a plan qualified under § 401(a) to
provide a written explanation to any recipient of an eligible rollover distribution, as defined in
§ 402(c)(4). In addition, §§ 403(a)(4)(B) and 457(e)(16)(B) require a plan administrator of a
§ 403(a) plan, or an eligible § 457(b) plan maintained by a governmental employer described in
§ 457(e)(1)(A) (governmental § 457(b) plan), to provide a written explanation to any recipient of
an eligible rollover distribution. Further, § 403(b)(8)(B) requires a payor under a § 403(b) plan
to provide a written explanation to the recipient of an eligible rollover distribution.

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An eligible rollover distribution is a payment that may be rolled over to an eligible
retirement plan, as defined in § 402(c)(8)(B). The term eligible retirement plan means an
individual retirement plan or an eligible employer plan. An individual retirement plan (IRA) is
defined in § 7701(a)(37) as an individual retirement account described in § 408(a) or an
individual retirement annuity described in § 408(b). For purposes of this notice, the term eligible
employer plan means: a plan qualified under § 401(a), including a money purchase pension
plan, a profit-sharing or stock bonus plan (whether or not the plan includes a qualified cash or
deferred arrangement under § 401(k)), and a defined benefit plan; a § 403(a) plan; a § 403(b)
plan; or a governmental § 457(b) plan.
The written explanation must describe the direct rollover rules, the mandatory income tax
withholding rules for distributions not directly rolled over, the tax treatment of distributions not
rolled over, and when distributions may be subject to different restrictions and tax consequences
after being rolled over. Section 402(f) provides that this explanation must be given within a
reasonable period of time before the plan makes an eligible rollover distribution. Under
§ 1.402(f)-1, A-5, of the Income Tax Regulations, the requirements of § 402(f) are satisfied if
this explanation (§ 402(f) notice) is provided through the use of an electronic medium that
complies with the requirements of § 1.401(a)-21. This explanation should be provided only to
participants who are eligible to receive distributions that are eligible rollover distributions.
Section 1.402(f)-1, A-1(b), provides that a plan administrator is deemed to have complied
with the requirement that a § 402(f) notice contain certain specified information if the plan
administrator provides the applicable model § 402(f) notice published by the IRS. The safe
harbor explanations in this notice constitute applicable model § 402(f) notices for this purpose.

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This notice provides updated safe harbor explanations that reflect changes made to the
Code that affect the information required to be provided in a § 402(f) notice, including sections
617 and 657 of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA),
P.L.107-16, and sections 824, 827, 828, 829, and 845 of the Pension Protection Act of 2006
(PPA ’06), P.L. 109-280. Section 617(a) of EGTRRA added § 402A of the Code, which allows
a plan to permit an employee who makes elective contributions under a qualified cash or
deferred arrangement to designate some or all of those contributions as designated Roth
contributions.
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Section 402A(c)(3) provides that a rollover contribution of any payment or
distribution to an individual from a designated Roth account may be made only if the
contribution is to another designated Roth account of the individual or to a Roth IRA of the
individual.
Section 657 of EGTRRA amended § 401(a)(31)(B) of the Code to require that a
mandatory distribution of more than $1,000 from a plan qualified under § 401(a) be paid in a
direct rollover to an IRA of a designated trustee or issuer if the distributee does not make an
affirmative election to have the amount paid in a direct rollover to an eligible retirement plan or
to receive the distribution directly. Section 403(a) plans, § 403(b) plans, and governmental
§ 457(b) plans are also required to comply with § 401(a)(31)(B).
Section 824 of PPA ’06 amended the definition of qualified rollover contribution in
§ 408A of the Code (relating to rollovers to a Roth IRA) to include rollover contributions from
any eligible retirement plan as defined in § 402(c)(8)(B). Prior to this amendment, a Roth IRA

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A designated Roth contribution is an elective contribution under a cash or deferred arrangement that is (i)
designated by the employee at the time of the cash or deferred election as a designated Roth contribution that is
being made in lieu of all or a portion of the pre-tax elective contribution the employee is eligible to make under the
plan, (ii) treated by the employer as includible in the employee’s gross income at the time the employee would have
received the amount in cash if the employee had not made the cash or deferred election, and (iii) maintained by the
plan in a separate account.

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could only accept rollover contributions from another Roth IRA, a non-Roth IRA, or a
designated Roth account described in § 402A. Section 408A(d)(3)(A) provides that a taxpayer
who makes a rollover to a Roth IRA from an eligible employer plan that is not from a designated
Roth account must include in gross income the amount of the rollover contribution (other than
after-tax contributions). Such a rollover to a Roth IRA is permitted only if the recipient’s
modified adjusted gross income for the year of the distribution does not exceed $100,000 and, if
married, the recipient files a joint return. Pursuant to section 512 of the Tax Increase Prevention
and Reconciliation Act of 2005 (TIPRA), P.L. 109-222, the $100,000 income and joint filing
requirements do not apply to distributions made after 2009. Section 408A(d)(3)(A), as modified
by TIPRA, provides that, in the absence of a contrary election, the amount otherwise required to
be included in gross income for any taxable year beginning in 2010 is included in gross income
ratably over the 2-year period beginning in 2011. For distributions after 2010, the amount
required to be included in income as a result of the distribution being rolled over to a Roth IRA
is included in gross income in the year of the distribution.
Under § 72(t)(2)(G) of the Code (as added by section 827 of PPA ’06 and modified by
section 107 of the Heroes Earnings Assistance and Relief Tax Act of 2008, P.L. 110-245), the
10% additional income tax on early distributions described in § 72(t) does not apply to a
qualified reservist distribution. A qualified reservist distribution generally means a distribution
from an IRA, or from amounts attributable to employer contributions made as elective deferrals
described in § 402(g)(3)(A) or (C) or § 501(c)(18)(D)(iii), made to an individual who was called
to active duty for a period in excess of 179 days. Section 72(t)(2)(G) also provides that any
individual who receives a qualified reservist distribution may re-contribute the distribution to an
IRA without regard to the applicable dollar limitations on contributions.

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Under § 72(t)(10) of the Code (as added by section 828 of PPA ’06), the 10% additional
income tax on early distributions under § 72(t) does not apply to a distribution from a
governmental plan, as defined in § 414(d), that is a defined benefit plan if the distribution is
made to a qualified public safety employee who separates from service after attainment of age
50. Under § 72(t)(10)(B), a qualified public safety employee is any employee of a State (or
political subdivision of a State) who provides police protection, firefighting services, or
emergency medical services for any area within the jurisdiction of the State (or political
subdivision of the State).
Under § 402(c)(11) of the Code (as added by section 829 of PPA ’06), a direct trustee-to-
trustee transfer of a distribution from an eligible employer plan to an inherited IRA (within the
meaning of § 408(d)(3)(C)) for a nonspouse designated beneficiary is treated as a direct rollover
of an eligible rollover distribution for purposes of § 402(c). For plan years beginning after
December 31, 2009, pursuant to section 108(f)(2) of the Worker, Retiree, and Employer
Recovery Act of 2008 (WRERA ‘08), P.L. 110-458, the notice requirement of § 402(f) applies to
distributions to a nonspouse designated beneficiary.
Section 845 of PPA ’06 added § 402(l) of the Code, which generally provides a limited
exclusion from gross income for distributions from an eligible employer plan that is a
governmental plan (as defined in § 414(d)) that are paid directly to an accident or health plan or a
qualified long-term care insurance contract for health or long-term care insurance premiums of
an eligible retired public safety officer, his or her spouse, or his or her dependents. Under
§ 457(a)(3), the § 402(l) exclusion also applies to distributions from a governmental § 457(b)
plan. An eligible retired public safety officer is a public safety officer who, by reason of
disability or attainment of normal retirement age, is separated from service as a public safety

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officer with the employer that maintains the plan. A public safety officer is defined under
section 1204(9)(A) of the Omnibus Crime Control and Safe Streets Act of 1968 (P.L. 90-351, 42
U.S.C. 3796b(9)(A)) as “an individual serving a public agency in an official capacity, with or
without compensation, as a law enforcement officer, as a firefighter, as a chaplain, or as a
member of a rescue squad or ambulance crew.” The total amount excluded from gross income
pursuant to § 402(l) cannot exceed $3,000 annually.
Under § 414(w) (as added by section 902 of PPA ’06), an applicable employer plan that
contains an eligible automatic contribution arrangement is permitted to allow employees to elect
to receive a distribution equal to the amount of the elective contributions under the arrangement
(and attributable earnings) made with respect to the employee beginning with the first payroll
period to which the arrangement applies to the employee and ending with the effective date of
the election. The election must be made within 90 days after the date of the first elective
contribution with respect to the employee under the arrangement. The amount of the distribution
is not an eligible rollover distribution and is includible in gross income (to the extent not a return
of designated Roth contributions) for the taxable year in which the distribution is made, but is
not subject to the 10% additional income tax on early distributions under § 72(t).
III. SAFE HARBOR EXPLANATIONS
A principal purpose of the changes in the safe harbor explanations in this notice is to
simplify the presentation and description of the participant’s options upon receiving an eligible
rollover distribution. The new safe harbor explanations also broaden the information to reflect
changes in law, such as information on a distribution from a designated Roth account under an
employer plan. The information has also been expanded to explain rules that apply in special
situations, for example, when a distribution is made to a nonresident alien.

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There are two safe harbor explanations in this notice. The first safe harbor explanation
does not include information relevant to distributions from a designated Roth account. Thus, the
first safe harbor explanation should only be used for a distribution that is not from a designated
Roth account. The second safe harbor explanation reflects the rules relating to distributions from
a designated Roth account. Thus, the second safe harbor explanation should only be used for a
distribution from a designated Roth account, and the IRS and the Department of the Treasury
recommend that it only be provided to a participant with a designated Roth account under the
Plan. Both explanations should be provided to a participant if the participant is eligible to
receive eligible rollover distributions both from a designated Roth account and from an account
other than a designated Roth account.
The safe harbor explanation in this notice for distributions not from a designated Roth
account meets the requirements of § 402(f) for an eligible rollover distribution that is not from a
designated Roth account if provided to the recipient of the eligible rollover distribution within a
reasonable period of time before the distribution is made. Similarly, the safe harbor explanation
in this notice for distributions from a designated Roth account meets the requirements of § 402(f)
for an eligible rollover distribution from a designated Roth account if provided to the recipient of
the eligible rollover distribution within a reasonable period of time before the distribution is
made.
Section 1.402(f)-1, A-2, currently provides, in general, that a reasonable period of time
for providing an explanation is no less than 30 days (subject to waiver) and no more than 90 days
before the date on which a distribution is made. Section 1102 of PPA ‘06 directs that this
regulation be modified to permit a notice required to be provided under § 402(f) to be provided
to a participant as much as 180 days before the date on which the distribution is made. Thus, the

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§ 402(f) notice may be provided as much as 180 days before the annuity starting date (or the date
on which the distribution is made). See § 1.402(f)-1, A-2(a), of the Proposed Income Tax
Regulations (73 FR 59575).
A plan administrator or payor may customize a safe harbor explanation by omitting any
information that does not apply to the plan. For example, if the plan does not hold after-tax
employee contributions, it would be appropriate for the section “If your payment includes after-
tax contributions” in the explanation for payments not from a designated Roth account to be
eliminated. Similarly, if the plan does not provide for distributions of employer stock or other
employer securities, it would be appropriate for the section “If your payment includes employer
stock that you do not roll over” to be eliminated. Other information that may not be relevant to a
particular plan includes, for example, the sections “If your payment is from a governmental
section 457(b) plan,” and “If you are an eligible retired public safety officer and your pension
payment is used to pay for health coverage or qualified long-term care insurance.” In addition,
the plan administrator or payor may provide additional information with a safe harbor
explanation if the information is not inconsistent with § 402(f).
Alternatively, a plan administrator or payor can satisfy § 402(f) by providing an
explanation that is different from a safe harbor explanation. Any explanation must contain the
information required by § 402(f) and must be written in a manner designed to be easily
understood.
If the law governing the tax treatment of distributions or other provisions described in a
safe harbor explanation in this notice is amended after September 28, 2009, the safe harbor
explanation will not satisfy § 402(f) to the extent that the safe harbor explanation no longer
accurately describes the relevant law. The safe harbor explanations in Notice 2002-3,

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appropriately modified to reflect statutory changes since Notice 2002-3 was published, will
continue to be safe harbor explanations with respect to notices provided through December 31,
2009.
It is expected that the IRS will publish a Spanish translation of these safe harbor
explanations.
EFFECT ON OTHER DOCUMENTS
Notice 2002-3 is modified and superseded.
DRAFTING INFORMATION
The principal authors of this notice are Kathleen Herrmann of the Employee Plans, Tax
Exempt and Government Entities Division, and Michael P. Brewer of the Office of the Division
Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). Questions regarding
this notice may be sent via e-mail to retirementplanquestions@irs.gov
. Mr. Brewer may be
reached at 202-622-6090 (not a toll-free call).
* * *

For Payments Not From a
Designated Roth Account

YOUR ROLLOVER OPTIONS

You are receiving this notice because all or a portion of a payment you are receiving
from the [INSERT NAME OF PLAN] (the “Plan”) is eligible to be rolled over to an IRA or
an employer plan. This notice is intended to help you decide whether to do such a
rollover.

This notice describes the rollover rules that apply to payments from the Plan that are not

from a designated Roth account (a type of account with special tax rules in some
employer plans). If you also receive a payment from a designated Roth account in the
Plan, you will be provided a different notice for that payment, and the Plan administrator
or the payor will tell you the amount that is being paid from each account.

Rules that apply to most payments from a plan are described in the “General
Information About Rollovers” section. Special rules that only apply in certain
circumstances are described in the “Special Rules and Options” section.

GENERAL INFORMATION ABOUT ROLLOVERS

How can a rollover affect my taxes?

You will be taxed on a payment from the Plan if you do not roll it over. If you are under
age 59½ and do not do a rollover, you will also have to pay a 10% additional income tax
on early distributions (unless an exception applies). However, if you do a rollover, you
will not have to pay tax until you receive payments later and the 10% additional income
tax will not apply if those payments are made after you are age 59½ (or if an exception
applies).

Where may I roll over the payment?

You may roll over the payment to either an IRA (an individual retirement account or
individual retirement annuity) or an employer plan (a tax-qualified plan, section 403(b)
plan, or governmental section 457(b) plan) that will accept the rollover. The rules of the
IRA or employer plan that holds the rollover will determine your investment options,
fees, and rights to payment from the IRA or employer plan (for example, no spousal
consent rules apply to IRAs and IRAs may not provide loans). Further, the amount
rolled over will become subject to the tax rules that apply to the IRA or employer plan.

How do I do a rollover?

There are two ways to do a rollover. You can do either a direct rollover or a 60-day
rollover.

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If you do a direct rollover, the Plan will make the payment directly to your IRA or an
employer plan. You should contact the IRA sponsor or the administrator of the
employer plan for information on how to do a direct rollover.

If you do not do a direct rollover
, you may still do a rollover by making a deposit into an
IRA or eligible employer plan that will accept it. You will have 60 days after you receive
the payment to make the deposit. If you do not do a direct rollover, the Plan is required
to withhold 20% of the payment for federal income taxes (up to the amount of cash and
property received other than employer stock). This means that, in order to roll over the
entire payment in a 60-day rollover, you must use other funds to make up for the 20%
withheld. If you do not roll over the entire amount of the payment, the portion not rolled
over will be taxed and will be subject to the 10% additional income tax on early
distributions if you are under age 59½ (unless an exception applies).

How much may I roll over?

If you wish to do a rollover, you may roll over all or part of the amount eligible for
rollover. Any payment from the Plan is eligible for rollover, except:

• Certain payments spread over a period of at least 10 years or over your life or life
expectancy (or the lives or joint life expectancy of you and your beneficiary)
• Required minimum distributions after age 70½ (or after death)
• Hardship distributions
• ESOP dividends
• Corrective distributions of contributions that exceed tax law limitations
• Loans treated as deemed distributions (for example, loans in default due to
missed payments before your employment ends)
• Cost of life insurance paid by the Plan
• Contributions made under special automatic enrollment rules that are withdrawn
pursuant to your request within 90 days of enrollment
• Amounts treated as distributed because of a prohibited allocation of S
corporation stock under an ESOP (also, there will generally be adverse tax
consequences if you roll over a distribution of S corporation stock to an IRA).

The Plan administrator or the payor can tell you what portion of a payment is eligible for
rollover.

If I don’t do a rollover, will I have to pay the 10% additional income tax on early
distributions?

If you are under age 59½, you will have to pay the 10% additional income tax on early
distributions for any payment from the Plan (including amounts withheld for income tax)
that you do not roll over, unless one of the exceptions listed below applies. This tax is
in addition to the regular income tax on the payment not rolled over.

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The 10% additional income tax does not apply to the following payments from the Plan:

• Payments made after you separate from service if you will be at least age 55 in
the year of the separation
• Payments that start after you separate from service if paid at least annually in
equal or close to equal amounts over your life or life expectancy (or the lives or
joint life expectancy of you and your beneficiary)
• Payments from a governmental defined benefit pension plan made after you
separate from service if you are a public safety employee and you are at least
age 50 in the year of the separation
• Payments made due to disability
• Payments after your death
• Payments of ESOP dividends
• Corrective distributions of contributions that exceed tax law limitations
• Cost of life insurance paid by the Plan
• Contributions made under special automatic enrollment rules that are withdrawn
pursuant to your request within 90 days of enrollment
• Payments made directly to the government to satisfy a federal tax levy
• Payments made under a qualified domestic relations order (QDRO)
• Payments up to the amount of your deductible medical expenses
• Certain payments made while you are on active duty if you were a member of a
reserve component called to duty after September 11, 2001 for more than 179
days
• Payments of certain automatic enrollment contributions requested to be
withdrawn within 90 days of the first contribution.
If I do a rollover to an IRA, will the 10% additional income tax apply to early
distributions from the IRA?

If you receive a payment from an IRA when you are under age 59½, you will have to
pay the 10% additional income tax on early distributions from the IRA, unless an
exception applies. In general, the exceptions to the 10% additional income tax for early
distributions from an IRA are the same as the exceptions listed above for early
distributions from a plan. However, there are a few differences for payments from an
IRA, including:

• There is no exception for payments after separation from service that are made
after age 55.
• The exception for qualified domestic relations orders (QDROs) does not apply
(although a special rule applies under which, as part of a divorce or separation
agreement, a tax-free transfer may be made directly to an IRA of a spouse or
former spouse).
• The exception for payments made at least annually in equal or close to equal
amounts over a specified period applies without regard to whether you have had
a separation from service.

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• There are additional exceptions for (1) payments for qualified higher education
expenses, (2) payments up to $10,000 used in a qualified first-time home
purchase, and (3) payments after you have received unemployment
compensation for 12 consecutive weeks (or would have been eligible to receive
unemployment compensation but for self-employed status).

Will I owe State income taxes?

This notice does not describe any State or local income tax rules (including withholding
rules).

SPECIAL RULES AND OPTIONS

If your payment includes after-tax contributions

After-tax contributions included in a payment are not taxed. If a payment is only part of
your benefit, an allocable portion of your after-tax contributions is generally included in
the payment. If you have pre-1987 after-tax contributions maintained in a separate
account, a special rule may apply to determine whether the after-tax contributions are
included in a payment.

You may roll over to an IRA a payment that includes after-tax contributions through
either a direct rollover or a 60-day rollover. You must keep track of the aggregate
amount of the after-tax contributions in all of your IRAs (in order to determine your
taxable income for later payments from the IRAs). If you do a direct rollover of only a
portion of the amount paid from the Plan and a portion is paid to you, each of the
payments will include an allocable portion of the after-tax contributions. If you do a 60-
day rollover to an IRA of only a portion of the payment made to you, the after-tax
contributions are treated as rolled over last. For example, assume you are receiving a
complete distribution of your benefit which totals $12,000, of which $2,000 is after-tax
contributions. In this case, if you roll over $10,000 to an IRA in a 60-day rollover, no
amount is taxable because the $2,000 amount not rolled over is treated as being after-
tax contributions.

You may roll over to an employer plan all of a payment that includes after-tax
contributions, but only through a direct rollover (and only if the receiving plan separately
accounts for after-tax contributions and is not a governmental section 457(b) plan). You
can do a 60-day rollover to an employer plan of part of a payment that includes after-tax
contributions, but only up to the amount of the payment that would be taxable if not
rolled over.

If you miss the 60-day rollover deadline

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the IRS. Private letter ruling requests require the payment of a nonrefundable user fee.
For more information, see IRS Publication 590, Individual Retirement Arrangements
(IRAs).

If your payment includes employer stock that you do not roll over

If you do not do a rollover, you can apply a special rule to payments of employer stock
(or other employer securities) that are either attributable to after-tax contributions or
paid in a lump sum after separation from service (or after age 59½, disability, or the
participant’s death). Under the special rule, the net unrealized appreciation on the stock
will not be taxed when distributed from the Plan and will be taxed at capital gain rates
when you sell the stock. Net unrealized appreciation is generally the increase in the
value of employer stock after it was acquired by the Plan. If you do a rollover for a
payment that includes employer stock (for example, by selling the stock and rolling over
the proceeds within 60 days of the payment), the special rule relating to the distributed
employer stock will not apply to any subsequent payments from the IRA or employer
plan. The Plan administrator can tell you the amount of any net unrealized appreciation.

If you have an outstanding loan that is being offset

If you have an outstanding loan from the Plan, your Plan benefit may be offset by the
amount of the loan, typically when your employment ends. The loan offset amount is
treated as a distribution to you at the time of the offset and will be taxed (including the
10% additional income tax on early distributions, unless an exception applies) unless
you do a 60-day rollover in the amount of the loan offset to an IRA or employer plan.

If you were born on or before January 1, 1936

If you were born on or before January 1, 1936 and receive a lump sum distribution that
you do not roll over, special rules for calculating the amount of the tax on the payment
might apply to you. For more information, see IRS Publication 575, Pension and
Annuity Income.

If your payment is from a governmental section 457(b) plan

If the Plan is a governmental section 457(b) plan, the same rules described elsewhere
in this notice generally apply, allowing you to roll over the payment to an IRA or an
employer plan that accepts rollovers. One difference is that, if you do not do a rollover,
you will not have to pay the 10% additional income tax on early distributions from the
Plan even if you are under age 59½ (unless the payment is from a separate account
holding rollover contributions that were made to the Plan from a tax-qualified plan, a
section 403(b) plan, or an IRA). However, if you do a rollover to an IRA or to an
employer plan that is not a governmental section 457(b) plan, a later distribution made
before age 59½ will be subject to the 10% additional income tax on early distributions
(unless an exception applies). Other differences are that you cannot do a rollover if the
payment is due to an “unforeseeable emergency” and the special rules under “If your

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payment includes employer stock that you do not roll over” and “If you were born on or
before January 1, 1936” do not apply.

If you are an eligible retired public safety officer and your pension payment is
used to pay for health coverage or qualified long-term care insurance

If the Plan is a governmental plan, you retired as a public safety officer, and your
retirement was by reason of disability or was after normal retirement age, you can
exclude from your taxable income plan payments paid directly as premiums to an
accident or health plan (or a qualified long-term care insurance contract) that your
employer maintains for you, your spouse, or your dependents, up to a maximum of
$3,000 annually. For this purpose, a public safety officer is a law enforcement officer,
firefighter, chaplain, or member of a rescue squad or ambulance crew.

If you roll over your payment to a Roth IRA

You can roll over a payment from the Plan made before January 1, 2010 to a Roth IRA
only if your modified adjusted gross income is not more than $100,000 for the year the
payment is made to you and, if married, you file a joint return. These limitations do not
apply to payments made to you from the Plan after 2009. If you wish to roll over the
payment to a Roth IRA, but you are not eligible to do a rollover to a Roth IRA until after
2009, you can do a rollover to a traditional IRA and then, after 2009, elect to convert the
traditional IRA into a Roth IRA.

If you roll over the payment to a Roth IRA, a special rule applies under which the
amount of the payment rolled over (reduced by any after-tax amounts) will be taxed.
However, the 10% additional income tax on early distributions will not apply (unless you
take the amount rolled over out of the Roth IRA within 5 years, counting from January 1
of the year of the rollover). For payments from the Plan during 2010 that are rolled over
to a Roth IRA, the taxable amount can be spread over a 2-year period starting in 2011.

If you roll over the payment to a Roth IRA, later payments from the Roth IRA that are
qualified distributions will not be taxed (including earnings after the rollover). A qualified
distribution from a Roth IRA is a payment made after you are age 59½ (or after your
death or disability, or as a qualified first-time homebuyer distribution of up to $10,000)
and after you have had a Roth IRA for at least 5 years. In applying this 5-year rule, you
count from January 1 of the year for which your first contribution was made to a Roth
IRA. Payments from the Roth IRA that are not qualified distributions will be taxed to the
extent of earnings after the rollover, including the 10% additional income tax on early
distributions (unless an exception applies). You do not have to take required minimum
distributions from a Roth IRA during your lifetime. For more information, see IRS
Publication 590, Individual Retirement Arrangements (IRAs).

You cannot roll over a payment from the Plan to a designated Roth account in an
employer plan.

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If you are not a plan participant

Payments after death of the participant
. If you receive a distribution after the
participant’s death that you do not roll over, the distribution will generally be taxed in the
same manner described elsewhere in this notice. However, the 10% additional income
tax on early distributions and the special rules for public safety officers do not apply, and
the special rule described under the section “If you were born on or before January 1,
1936” applies only if the participant was born on or before January 1, 1936.

If you are a surviving spouse. If you receive a payment from the Plan as the
surviving spouse of a deceased participant, you have the same rollover options
that the participant would have had, as described elsewhere in this notice. In
addition, if you choose to do a rollover to an IRA, you may treat the IRA as your
own or as an inherited IRA.

An IRA you treat as your own is treated like any other IRA of yours, so that
payments made to you before you are age 59½ will be subject to the 10%
additional income tax on early distributions (unless an exception applies) and
required minimum distributions from your IRA do not have to start until after you
are age 70½.

If you treat the IRA as an inherited IRA, payments from the IRA will not be
subject to the 10% additional income tax on early distributions. However, if the
participant had started taking required minimum distributions, you will have to
receive required minimum distributions from the inherited IRA. If the participant
had not started taking required minimum distributions from the Plan, you will not
have to start receiving required minimum distributions from the inherited IRA until
the year the participant would have been age 70½.

If you are a surviving beneficiary other than a spouse. If you receive a
payment from the Plan because of the participant’s death and you are a
designated beneficiary other than a surviving spouse, the only rollover option you
have is to do a direct rollover to an inherited IRA. Payments from the inherited
IRA will not be subject to the 10% additional income tax on early distributions.
You will have to receive required minimum distributions from the inherited IRA.

Payments under a qualified domestic relations order
. If you are the spouse or former
spouse of the participant who receives a payment from the Plan under a qualified
domestic relations order (QDRO), you generally have the same options the participant
would have (for example, you may roll over the payment to your own IRA or an eligible
employer plan that will accept it). Payments under the QDRO will not be subject to the
10% additional income tax on early distributions.

8
If you are a nonresident alien

If you are a nonresident alien and you do not do a direct rollover to a U.S. IRA or U.S.
employer plan, instead of withholding 20%, the Plan is generally required to withhold
30% of the payment for federal income taxes. If the amount withheld exceeds the
amount of tax you owe (as may happen if you do a 60-day rollover), you may request an
income tax refund by filing Form 1040NR and attaching your Form 1042-S. See Form
W-8BEN for claiming that you are entitled to a reduced rate of withholding under an
income tax treaty. For more information, see also IRS Publication 519, U.S. Tax Guide
for Aliens, and IRS Publication 515, Withholding of Tax on Nonresident Aliens and
Foreign Entities.

Other special rules

If a payment is one in a series of payments for less than 10 years, your choice whether
to make a direct rollover will apply to all later payments in the series (unless you make a
different choice for later payments).

If your payments for the year are less than $200 (not including payments from a
designated Roth account in the Plan), the Plan is not required to allow you to do a direct
rollover and is not required to withhold for federal income taxes. However, you may do
a 60-day rollover.

Unless you elect otherwise, a mandatory cashout of more than $1,000 (not including
payments from a designated Roth account in the Plan) will be directly rolled over to an
IRA chosen by the Plan administrator or the payor. A mandatory cashout is a payment
from a plan to a participant made before age 62 (or normal retirement age, if later) and
without consent, where the participant’s benefit does not exceed $5,000 (not including
any amounts held under the plan as a result of a prior rollover made to the plan).

You may have special rollover rights if you recently served in the U.S. Armed Forces.
For more information, see IRS Publication 3, Armed Forces’ Tax Guide.

FOR MORE INFORMATION

You may wish to consult with the Plan administrator or payor, or a professional tax
advisor, before taking a payment from the Plan. Also, you can find more detailed
information on the federal tax treatment of payments from employer plans in: IRS
Publication 575, Pension and Annuity Income; IRS Publication 590, Individual
Retirement Arrangements (IRAs); and IRS Publication 571, Tax-Sheltered Annuity
Plans (403(b) Plans). These publications are available from a local IRS office, on the
web at www.irs.gov
, or by calling 1-800-TAX-FORM.

* * *

For Payments From a
Designated Roth Account

YOUR ROLLOVER OPTIONS

You are receiving this notice because all or a portion of a payment you are receiving
from the [INSERT NAME OF PLAN] (the “Plan”) is eligible to be rolled over to a Roth
IRA or designated Roth account in an employer plan. This notice is intended to help
you decide whether to do a rollover.

This notice describes the rollover rules that apply to payments from the Plan that are
from a designated Roth account. If you also receive a payment from the Plan that is not
from a designated Roth account, you will be provided a different notice for that payment,
and the Plan administrator or the payor will tell you the amount that is being paid from
each account.

Rules that apply to most payments from a designated Roth account are described in the
“General Information About Rollovers” section. Special rules that only apply in certain
circumstances are described in the “Special Rules and Options” section.

GENERAL INFORMATION ABOUT ROLLOVERS

How can a rollover affect my taxes?

After-tax contributions included in a payment from a designated Roth account are not
taxed, but earnings might be taxed. The tax treatment of earnings included in the
payment depends on whether the payment is a qualified distribution. If a payment is
only part of your designated Roth account, the payment will include an allocable portion
of the earnings in your designated Roth account.

If the payment from the Plan is not a qualified distribution and you do not do a rollover to
a Roth IRA or a designated Roth account in an employer plan, you will be taxed on the
earnings in the payment. If you are under age 59½, a 10% additional income tax on
early distributions will also apply to the earnings (unless an exception applies).
However, if you do a rollover, you will not have to pay taxes currently on the earnings
and you will not have to pay taxes later on payments that are qualified distributions.

If the payment from the Plan is a qualified distribution, you will not be taxed on any part
of the payment even if you do not do a rollover. If you do a rollover, you will not be
taxed on the amount you roll over and any earnings on the amount you roll over will not
be taxed if paid later in a qualified distribution.

A qualified distribution from a designated Roth account in the Plan is a payment made
after you are age 59½ (or after your death or disability) and after you have had a
designated Roth account in the Plan for at least 5 years. In applying the 5-year rule,
you count from January 1 of the year your first contribution was made to the designated
Roth account. However, if you did a direct rollover to a designated Roth account in the

2
Plan from a designated Roth account in another employer plan, your participation will
count from January 1 of the year your first contribution was made to the designated
Roth account in the Plan or, if earlier, to the designated Roth account in the other
employer plan.

Where may I roll over the payment?

You may roll over the payment to either a Roth IRA (a Roth individual retirement
account or Roth individual retirement annuity) or a designated Roth account in an
employer plan (a tax-qualified plan or section 403(b) plan) that will accept the rollover.
The rules of the Roth IRA or employer plan that holds the rollover will determine your
investment options, fees, and rights to payment from the Roth IRA or employer plan (for
example, no spousal consent rules apply to Roth IRAs and Roth IRAs may not provide
loans). Further, the amount rolled over will become subject to the tax rules that apply to
the Roth IRA or the designated Roth account in the employer plan. In general, these
tax rules are similar to those described elsewhere in this notice, but differences include:

• If you do a rollover to a Roth IRA, all of your Roth IRAs will be considered for
purposes of determining whether you have satisfied the 5-year rule (counting
from January 1 of the year for which your first contribution was made to any of
your Roth IRAs).
• If you do a rollover to a Roth IRA, you will not be required to take a
distribution from the Roth IRA during your lifetime and you must keep track of
the aggregate amount of the after-tax contributions in all of your Roth IRAs (in
order to determine your taxable income for later Roth IRA payments that are
not qualified distributions).
• Eligible rollover distributions from a Roth IRA can only be rolled over to
another Roth IRA.

How do I do a rollover?

There are two ways to do a rollover. You can either do a direct rollover or a 60-day
rollover.

If you do a direct rollover
, the Plan will make the payment directly to your Roth IRA or
designated Roth account in an employer plan. You should contact the Roth IRA
sponsor or the administrator of the employer plan for information on how to do a direct
rollover.

If you do not do a direct rollover
, you may still do a rollover by making a deposit within
60 days into a Roth IRA, whether the payment is a qualified or nonqualified distribution.
In addition, you can do a rollover by making a deposit within 60 days into a designated
Roth account in an employer plan if the payment is a nonqualified distribution and the
rollover does not exceed the amount of the earnings in the payment. You cannot do a
60-day rollover to an employer plan of any part of a qualified distribution. If you receive
a distribution that is a nonqualified distribution and you do not roll over an amount at

3
least equal to the earnings allocable to the distribution, you will be taxed on the amount
of those earnings not rolled over, including the 10% additional income tax on early
distributions if you are under age 59½ (unless an exception applies).

If you do a direct rollover of only a portion of the amount paid from the Plan and a
portion is paid to you, each of the payments will include an allocable portion of the
earnings in your designated Roth account.

If you do not do a direct rollover and the payment is not a qualified distribution, the Plan
is required to withhold 20% of the earnings for federal income taxes (up to the amount
of cash and property received other than employer stock). This means that, in order to
roll over the entire payment in a 60-day rollover to a Roth IRA, you must use other funds
to make up for the 20% withheld.

How much may I roll over?

If you wish to do a rollover, you may roll over all or part of the amount eligible for
rollover. Any payment from the Plan is eligible for rollover, except:

The Plan administrator or the payor can tell you what portion of a payment is eligible for
rollover.

If I don’t do a rollover, will I have to pay the 10% additional income tax on early
distributions?

If a payment is not a qualified distribution and you are under age 59½, you will have to
pay the 10% additional income tax on early distributions with respect to the earnings
allocated to the payment that you do not roll over (including amounts withheld for
income tax), unless one of the exceptions listed below applies. This tax is in addition to
the regular income tax on the earnings not rolled over.

4
The 10% additional income tax does not apply to the following payments from the Plan:

• Payments made after you separate from service if you will be at least age 55 in
the year of the separation
• Payments that start after you separate from service if paid at least annually in
equal or close to equal amounts over your life or life expectancy (or the lives or
joint life expectancy of you and your beneficiary)
• Payments made due to disability
• Payments after your death
• Payments of ESOP dividends
• Corrective distributions of contributions that exceed tax law limitations
• Cost of life insurance paid by the Plan
• Contributions made under special automatic enrollment rules that are withdrawn
pursuant to your request within 90 days of enrollment
• Payments made directly to the government to satisfy a federal tax levy
• Payments made under a qualified domestic relations order (QDRO)
• Payments up to the amount of your deductible medical expenses
• Certain payments made while you are on active duty if you were a member of a
reserve component called to duty after September 11, 2001 for more than 179
days
• Payments of certain automatic enrollment contributions requested to be
withdrawn within 90 days of the first contribution.
If I do a rollover to a Roth IRA, will the 10% additional income tax apply to early
distributions from the IRA?

If you receive a payment from a Roth IRA when you are under age 59½, you will have
to pay the 10% additional income tax on early distributions on the earnings paid from
the Roth IRA, unless an exception applies or the payment is a qualified distribution. In
general, the exceptions to the 10% additional income tax for early distributions from a
Roth IRA listed above are the same as the exceptions for early distributions from a plan.
However, there are a few differences for payments from a Roth IRA, including:

• There is no special exception for payments after separation from service.
• The exception for qualified domestic relations orders (QDROs) does not apply
(although a special rule applies under which, as part of a divorce or separation
agreement, a tax-free transfer may be made directly to a Roth IRA of a spouse or
former spouse).
• The exception for payments made at least annually in equal or close to equal
amounts over a specified period applies without regard to whether you have had
a separation from service.
• There are additional exceptions for (1) payments for qualified higher education
expenses, (2) payments up to $10,000 used in a qualified first-time home
purchase, and (3) payments after you have received unemployment

5
compensation for 12 consecutive weeks (or would have been eligible to receive
unemployment compensation but for self-employed status).

Will I owe State income taxes?

This notice does not describe any State or local income tax rules (including withholding
rules).

SPECIAL RULES AND OPTIONS

If you miss the 60-day rollover deadline

Generally, the 60-day rollover deadline cannot be extended. However, the IRS has the
limited authority to waive the deadline under certain extraordinary circumstances, such
as when external events prevented you from completing the rollover by the 60-day
rollover deadline. To apply for a waiver, you must file a private letter ruling request with
the IRS. Private letter ruling requests require the payment of a nonrefundable user fee.
For more information, see IRS Publication 590, Individual Retirement Arrangements
(IRAs).

If your payment includes employer stock that you do not roll over

If you receive a payment that is not a qualified distribution and you do not roll it over,
you can apply a special rule to payments of employer stock (or other employer
securities) that are paid in a lump sum after separation from service (or after age 59½,
disability, or the participant’s death). Under the special rule, the net unrealized
appreciation on the stock included in the earnings in the payment will not be taxed when
distributed to you from the Plan and will be taxed at capital gain rates when you sell the
stock. If you do a rollover to a Roth IRA for a nonqualified distribution that includes
employer stock (for example, by selling the stock and rolling over the proceeds within 60
days of the distribution), you will not have any taxable income and the special rule
relating to the distributed employer stock will not apply to any subsequent payments
from the Roth IRA or employer plan. Net unrealized appreciation is generally the
increase in the value of the employer stock after it was acquired by the Plan. The Plan
administrator can tell you the amount of any net unrealized appreciation.

If you receive a payment that is a qualified distribution that includes employer stock and
you do not roll it over, your basis in the stock (used to determine gain or loss when you
later sell the stock) will equal the fair market value of the stock at the time of the
payment from the Plan.

If you have an outstanding loan that is being offset

6
nonqualified distribution, the earnings in the loan offset will be taxed (including the 10%
additional income tax on early distributions, unless an exception applies) unless you do
a 60-day rollover in the amount of the earnings in the loan offset to a Roth IRA or
designated Roth account in an employer plan.

If you receive a nonqualified distribution and you were born on or before
January 1, 1936

If you were born on or before January 1, 1936, and receive a lump sum distribution that
is not a qualified distribution and that you do not roll over, special rules for calculating
the amount of the tax on the earnings in the payment might apply to you. For more
information, see IRS Publication 575, Pension and Annuity Income.

If you receive a nonqualified distribution, are an eligible retired public safety
officer, and your pension payment is used to pay for health coverage or qualified
long-term care insurance

If the Plan is a governmental plan, you retired as a public safety officer, and your
retirement was by reason of disability or was after normal retirement age, you can
exclude from your taxable income nonqualified distributions paid directly as premiums to
an accident or health plan (or a qualified long-term care insurance contract) that your
employer maintains for you, your spouse, or your dependents, up to a maximum of
$3,000 annually. For this purpose, a public safety officer is a law enforcement officer,
firefighter, chaplain, or member of a rescue squad or ambulance crew.

If you are not a plan participant

Payments after death of the participant
. If you receive a distribution after the
participant’s death that you do not roll over, the distribution will generally be taxed in the
same manner described elsewhere in this notice. However, whether the payment is a
qualified distribution generally depends on when the participant first made a contribution
to the designated Roth account in the Plan. Also, the 10% additional income tax on
early distributions and the special rules for public safety officers do not apply, and the
special rule described under the section “If you receive a nonqualified distribution and
you were born on or before January 1, 1936” applies only if the participant was born on
or before January 1, 1936.

If you are a surviving spouse. If you receive a payment from the Plan as the
surviving spouse of a deceased participant, you have the same rollover options
that the participant would have had, as described elsewhere in this notice. In
addition, if you choose to do a rollover to a Roth IRA, you may treat the Roth IRA
as your own or as an inherited Roth IRA.

A Roth IRA you treat as your own is treated like any other Roth IRA of yours, so
that you will not have to receive any required minimum distributions during your
lifetime and earnings paid to you in a nonqualified distribution before you are age

7
59½ will be subject to the 10% additional income tax on early distributions
(unless an exception applies).

If you treat the Roth IRA as an inherited Roth IRA, payments from the Roth IRA
will not be subject to the 10% additional income tax on early distributions. An
inherited Roth IRA is subject to required minimum distributions. If the participant
had started taking required minimum distributions from the Plan, you will have to
receive required minimum distributions from the inherited Roth IRA. If the
participant had not started taking required minimum distributions, you will not
have to start receiving required minimum distributions from the inherited Roth
IRA until the year the participant would have been age 70½.

If you are a surviving beneficiary other than a spouse. If you receive a
payment from the Plan because of the participant’s death and you are a
designated beneficiary other than a surviving spouse, the only rollover option you
have is to do a direct rollover to an inherited Roth IRA. Payments from the
inherited Roth IRA, even if made in a nonqualified distribution, will not be subject
to the 10% additional income tax on early distributions. You will have to receive
required minimum distributions from the inherited Roth IRA.

Payments under a qualified domestic relations order
. If you are the spouse or a former
spouse of the participant who receives a payment from the Plan under a qualified
domestic relations order (QDRO), you generally have the same options the participant
would have (for example, you may roll over the payment as described in this notice).

If you are a nonresident alien

Other special rules

If your payments for the year (only including payments from the designated Roth
account in the Plan) are less than $200, the Plan is not required to allow you to do a

8
direct rollover and is not required to withhold for federal income taxes. However, you
can do a 60-day rollover.

Unless you elect otherwise, a mandatory cashout from the designated Roth account in
the Plan of more than $1,000 will be directly rolled over to a Roth IRA chosen by the
Plan administrator or the payor. A mandatory cashout is a payment from a plan to a
participant made before age 62 (or normal retirement age, if later) and without consent,
where the participant’s benefit does not exceed $5,000 (not including any amounts held
under the plan as a result of a prior rollover made to the plan).

You may have special rollover rights if you recently served in the U.S. Armed Forces.
For more information, see IRS Publication 3, Armed Forces’ Tax Guide.

FOR MORE INFORMATION

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