This bill allows participants aged 50 and older to roll over employer contributions from a 401(k) plan into an individual retirement annuity before retirement and updates the required rollover explanation provided to taxpayers.
Jimmy Panetta
Representative
CA-19
This bill, the Retirement Simplification and Clarity Act, amends tax code to allow participants aged 50 and older to roll over employer contributions from their 401(k) plan directly into an individual retirement annuity before retirement. It also updates the required written explanation provided to taxpayers regarding rollover rules to ensure it is concise and clearly outlines key tax implications and options. These provisions are set to take effect for taxable years beginning after December 31, 2025.
Retirement Simplification Act Allows 401(k) Rollovers for Ages 50+ Starting 2026
The Retirement Simplification and Clarity Act is looking to make a couple of key changes to how people manage their 401(k)s, specifically for those nearing retirement. Starting in 2026, this bill allows workers aged 50 or older to move their employer contributions directly into an Individual Retirement Annuity (IRA) while they are still working—a move known as an “in-service rollover.” Essentially, this gives older workers more flexibility to lock in guaranteed income streams from an annuity before they actually retire, without having to leave their job first (Sec. 2).
The Annuity Option: Pre-Retirement Flexibility
Right now, if you want to take your 401(k) money and use it to buy an annuity—which is basically a contract that guarantees you a stream of payments later—you usually have to wait until you separate from service or hit the plan’s retirement age. This bill changes that for the 50+ crowd. If your plan allows it, you can now take all or part of the money your employer has contributed and roll it over into an IRA annuity (Sec. 2). Think of a 55-year-old construction manager who wants to secure a portion of their nest egg against market volatility before they retire in ten years; this provision lets them do that while continuing to work and contribute to their 401(k). This is a big win for people who prioritize guaranteed income in retirement planning.
Clearing Up Rollover Confusion
The second major part of this bill addresses the confusing paperwork that comes with moving retirement funds. It establishes a new "safe harbor" standard for the written explanation plan administrators must give you about rollovers (Sec. 2). This means the required information will be clearer, simpler, and more standardized across the board. This new explanation must spell out, in plain language, key details like the 30-day review period, the 20% mandatory withholding if you take the money directly instead of rolling it over, and the types of distributions that can’t be rolled over (like hardship distributions or required minimum distributions).
This is the federal government saying, “We know this is complicated, so here are the clear ground rules.” For anyone who has ever stared blankly at a 401(k) distribution form, this standardized, clear explanation is a huge relief. It ensures that whether you’re a software engineer or a small business owner, you get the same clear warning about the 10% penalty if you take a distribution before age 59½ and how to avoid that by using a direct rollover (Sec. 2).
When Does This Kick In?
These changes don't take effect immediately. They apply to tax years beginning after December 31, 2025. So, if you’re approaching 50 and eyeing your retirement account, mark your calendar for 2026. This bill offers more control and clarity over retirement savings, particularly for those who are focused on converting a portion of their savings into a predictable income stream as they transition toward retirement.