I previously wrote about how the retirement plan industry should make the distribution and rollover process more efficient and educational. Many others feel the same way, including Congress. As part of SECURE 2.0, Congress asked the Government Accountability Office (GAO) to submit a report on the effectiveness of the special tax notice – 402(f) notice to pension nerds. The goal was to facilitate better understanding by recipients of different distribution options and corresponding tax consequences.

The GAO issued a report in 2024 titled, “401(k) Retirement Plan Tax Notices: Federal Actions Can Help Participants Understand Their Distribution Options.” The report suggested recommendations in making the special tax notices comprehensive but also easily understood. Although a little slow, the IRS finally made some of those modifications by releasing new templates of the special tax notice for both non-Roth and Roth distributions (see Notice 2026-13).

Content Changes

The special tax notice provides participants with information about their options for managing their retirement plan savings before making an eligible rollover distribution. The most recent modifications can be broken down into two categories: (1) information about new distribution rules; and (2) improved language to make it clearer and more concise.

New Distribution Rules

Since the last IRS templates, many new distribution rules have become effective through SECURE and SECURE 2.0. Many of the changes involved exemptions to the 10% early withdrawal penalty. For example, the following distribution reasons are now exempt from the penalty: emergency personal expenses, domestic abuse victims, terminally ill individuals, qualified disaster recovery, pension-linked emergency savings accounts and qualified long-term care premiums. The new IRS templates added these to the exemption list.

The required minimum distribution (RMD) rules have also changed. The start date may be a different age depending upon when you were born. Surviving spouses have new elections to potentially consider, and Roth accounts are no longer subject to RMDs. Here, the IRS took the easy route in replacing birthdates with “based on your age” to determine RMD start dates. It also references IRS Publication 590 for more information about payments after death.

Finally, the new templates make other minor changes. For example, the revised special tax notices now reflect the increased force-out threshold limit of $7,000, up from $5,000. They also provide information on special rules for distributions from governmental plans to certain participants and distributions involving collectibles.

Improved Language

The revised special tax notice incorporates wording recommendations in the GAO report. The GAO report took issue with the old version not clarifying to participants that one of their options was to do nothing at all. In other words, participants may leave their balance in the retirement plan. In addition, the GAO report thought it would be clearer and more concise to list the four distribution options in the beginning with a brief description of the corresponding tax consequences. Both of these changes are included in the new IRS templates.

The new IRS templates also makes other changes in an effort to make the notice easier to read and understand. Some of the changes seem to be beneficial, such as adding a table of contents and distinguishing how a rollover affects taxation. Other changes seem to be trivial, such as changing “do not” to “don’t” and “subsequent” to “later.” Overall, the different phrasing or additional wording does seem to make the notices easier to understand.

The potential issue with these changes is the special tax notices are now a bloated 11 pages long. For participants with both Roth and non-Roth accounts, the notices would be 22 pages long! The key to reducing that size is determining what is “critical” and needs to stay as compared to “non-critical” and can be a reference to find additional information. Another option may be to provide a summary of the special tax notice with the ability to receive the full one upon request or at a later time.

Timing Changes?

Special tax notices must generally be provided within a reasonable time period before making an eligible rollover distribution. A reasonable time period is no less than 30 days (unless waived by the participant) and no more than 180 days before the distribution is made. Consequently, the notices are generally provided in close proximity to the actual distribution.

The GAO report recommended a potential change to assist participants in making better decisions. It suggested providing the special tax notice when a distributable event occurs, like separation from service. The participant then has time to adequately understand or ask questions about the different distribution options and corresponding tax implications.

The potential issue of providing the notice at separation of service is that the distribution itself may fall outside of the 180-day window. Making any changes to the notice timing likely involves both legislative and executive cooperation. Until that occurs, the revised special tax notice and applicable guidance continue to require notice within a reasonable time before making the distribution.

Helping Participants Achieve Better Retirement Outcomes

If you are responsible for sending these special tax notices to participants, using the new IRS templates is the best option for staying legally compliant. If you don’t want the hassle or trouble of monitoring for these updates, PenChecks can help. We offer distribution processing services, including delivery of the special tax notice. We would be happy to discuss how we can take this burden off your plate so that you can focus on value-added services.

Hopefully these revised special tax notices help in the effort of making the distribution and rollover process more efficient and informative. Service providers and employers may further assist by taking the GAO report’s timing suggestion. Sending the special tax notice (or a summary) at certain times, such as separation from service, may aid participants in making better decisions. It would be nice if the IRS or Congress would assist in the future by giving additional structure or guidance.

About the Author

Brian Furgala, Esq., CPC, QPA is Senior Director, Retirement Services Strategy for PenChecks, a leader in outsourced retirement plan distribution processing and Automatic Rollover/Missing Participant IRAs and related services. His broad experience as an ERISA attorney and senior executive for several leading retirement plan service providers gives him a unique perspective on the industry.

The views expressed in this article are those of the author and do not necessarily represent the views of PenChecks Trust®, its subsidiaries or affiliates.