No Check, Please! New IRS Rollover Guidance for Retirement Plans Signals Changes May Be Coming
Direct rollovers between qualified plans, such as 401(k) plans, or between qualified plans and individual retirement accounts (IRAs), have long been popular with plan participants seeking to move or consolidate their retirement accounts while maintaining tax advantages and avoiding penalties on premature distributions and mandatory income tax withholding.
The Not So Direct Rollover…
Despite their popularity, direct rollovers have suffered from a lack of uniformity in procedures, leading to inefficiencies and administrative burdens for participants. Reports released by the Government Accountability Office (GAO) in 2013 and 2024 highlight these concerns, noting that participants often are forced to serve as intermediaries between plans and taking issue with the common practice of accomplishing a direct rollover by sending a paper check to a participant and requiring the participant to then deliver the check to the receiving plan. According to the GAO, this indirect process seems “archaic” given the prevalence of electronic communication, increases the likelihood of a “lost” payment, and often results in an extended period during which participant accounts are not invested. Distributing plans could instead wire funds electronically or send a check directly to the receiving plan.
IRS Notice 2026-49: Proposed Sample Forms and Standardized Procedures
In response to these concerns, and as required by the SECURE 2.0 Act of 2022, the IRS issued IRS Notice 2026-49 (Notice), which proposes a five-step procedure and four corresponding sample forms intended to simplify, standardize, facilitate, and expedite the completion of direct rollovers to or from a retirement plan. The following key elements were emphasized:
- Protecting personal identifying information (PII) – Encrypted Data Transfers and Unique Rollover Identification Numbers
- Requiring Plan-to-Plan Coordination/Communication to Minimize Participant Burden
- Using Common Data Set/Terms Throughout the Rollover Process
- Requiring Plans to Verify Accuracy of Information and Legitimacy of Rollover Before Transferring Funds
- Requiring Electronic Communications and Rollover Transfers to the Maximum Extent Possible
Use of the standardized procedure and sample forms is optional. Plan administrators are not required to make changes at this time, and the Notice itself does not impose new legal requirements on direct rollovers.
Additional Guidance Under Consideration
Looking ahead, the Treasury Department and IRS are considering additional guidance that would:
- disallow the paper check practice described above,
- designate certain additional practices as impermissibly burdensome (such as requiring Medallion Signature Guarantees), and
- create new safe harbors based on the use of IRS sample forms.
One potential safe harbor under consideration would permit the plan administrator of a plan receiving a direct rollover to satisfy its obligation to “reasonably conclude” that the distributing plan is tax-qualified and that the potential rollover contribution is valid — absent any evidence to the contrary — based solely on the use of the sample forms. By contrast, under current safe harbor guidance, as reflected in applicable Treasury regulations and IRS Revenue Ruling 2014-9, a receiving plan must either (i) receive a letter from the distributing plan administrator stating that the plan has a determination letter or is qualified, or (ii) confirm that the most recently filed Form 5500 for the distributing plan indicates that it is intended to be qualified.
Possible Next Steps for Plan Sponsors
No immediate action is required, as the sample forms remain optional and additional guidance has not yet been finalized. However, plan sponsors may wish to consider the following proactive steps:
- Assess Current Rollover Procedures.
Review your plan’s current direct rollover procedures in light of the sample forms and procedures, as well as the administrative concerns, reflected in the Notice. - Engage with the Plan’s Recordkeeper.
Discuss with your plan’s recordkeeper whether they are considering adopting the sample forms and standardized procedures or making any interim changes to direct rollover procedures to address the areas of focus in the Notice (such as paper check practices and data privacy). - Submit Comments or Suggestions.
Consider providing a comment or suggestion to the Treasury Department and IRS regarding the Notice — a member of Foley’s Employee Benefits & Executive Compensation group can assist you. The deadline to submit comments and suggestions is October 23, 2026.
