FLASHPOINT: IRS RELEASES UPDATED 402(f) NOTICE

By: Alison J. Cohen, Esq.

The Internal Revenue Service (“IRS”) recently issued Notice 2026-13, which contains updates to the Internal Revenue Code (“IRC”) section 402(f) mandatory participant notice (AKA the Special Tax Notice) (the “Notice”).  The purpose of this Notice is to inform participants of their rights and options when they are eligible for a distribution from a retirement plan. If a Notice is distributed, and no one actually ever reads it, does it exist? (That’s a philosophical question for another time.)

In 2020, the IRS issued revised 402(f) notices setting forth the two safe harbor explanations for distributions from a plan:  one for distributions from designated Roth accounts and one for distributions from traditional pre-tax accounts.

There have been a number of changes to the IRC relating to distributions under the SECURE 2.0 Act of 2022 (“SECURE 2.0”) and the IRS is now incorporating those changes in this version of the Notice.  As was true in 2020, if a participant is receiving a distribution that is part pre-tax and part Roth, both versions of the Notice must be provided.  With the new required Roth Catch-up Contributions, most 401(k) and 403(b) plans may need to provide both versions of the Notice more often than in years past.  (Yes, we know that that’s a lot of paper; we don’t make the rules, we just report ‘em. Another reason to move to electronic forms.)

When the 402(f) Notice is Required

A Plan Administrator of a qualified plan under IRC section 401(a), an annuity program under IRC section 403(a), or a 403(b) program is required to provide the Notice to any recipient (participant or beneficiary) of a distribution eligible for rollover (i.e., an “Eligible Rollover Distribution”).  The Notice is also required for Eligible Rollover Distributions from a governmental 457(b) plan.

The Notice is required to be given within a reasonable period of time, designated as no less than 30 days, and no more than 90 days, before the date on which the Eligible Rollover Distribution is made.  The IRS guidance further provides that the Notice may be provided outside that “reasonable” period, but not more than 180 days before the date of the distribution. (Distribution forms become stale dated and must be reissued if the distribution is not made within 180 days).  No Notice is required if the distribution is not an Eligible Rollover Distribution.  Examples of such distributions are required minimum distributions, hardship distributions, and distributions from 401(k) plans for special situations, such as birth of a child or to pay for an emergency expense.  Not all plans offer these additional distribution options.

What Changes are Incorporated into the New Notice?

There are three general groups of updates that were added to the text of the Notice.  Some of these provisions are several years old, so it is about time they were added to the Notice.

Changes Related to New Distribution Exceptions under IRC section 72(t):

• Emergency Personal Expenses – SECURE 2.0 section 115 (See Notice 2024-55)
• Qualified Public Safety Employees and Private-Sector Firefighters – SECURE 2.0 sections 308 and 329
• Domestic Abuse Victims – SECURE 2.0 section 314
• Terminally Ill Individuals – SECURE 2.0 section 326 (See Notice 2024-2)
• Qualified Disaster Recovery – SECURE 2.0 section 331
• Pension-Linked Emergency Savings Accounts (PLESAs) – SECURE 2.0 section 127
• Qualified Long-Term Care Distributions – SECURE 2.0 section 334

Updates to Required Minimum Distributions (“RMD”) Rules:

• Eligible age increased to ages 72, 73, or 74, depending on the participant’s date of birth – SECURE 2.0 Section 107
• RMDs from Designated Roth Accounts are no longer required – SECURE 2.0 section 325
• Surviving Spouse Election based on the new 10-year period for beneficiary payments – SECURE 2.0 section 327

Other Related Distribution Changes:

• Mandatory Cash-out Distributions increase from $5,000 to $7,000 – SECURE 2.0 section 304
• Distributions from Governmental Plans to Eligible Retired Public Safety Officers for Health and Long-Term Care Insurance – SECURE 2.0 section 328
• Collectibles – The IRS published TD 10001 (89 FR 58886) on July 19, 2024, outlining the rules for the purchase of a collectible not eligible for rollover treatment.
• Rules related to rollovers to a SIMPLE IRA plan under IRC section 408(p)(1)(B).

Final Thoughts on this Update

With all of this new content, the IRS has added a table of contents to “improve clarity” of this Notice. (Because a table of contents will really help with a notice that is now 11 pages.)

Don’t go etching this new version in stone.  The IRS indicated that they anticipate providing another updated version at this time next year when additional SECURE 2.0 provisions become effective for taxable years beginning after December 31, 2026.