New Retirement Bill Eases Rollover from Small Roth IRAs into Your Company 401(k)

The new Retirement Rollover Flexibility Act aims to simplify how you manage your Roth retirement savings. Essentially, this bill creates a direct, tax-free path for moving funds from a personal Roth IRA straight into a designated Roth account within an employer-sponsored plan, like a Roth 401(k).

This isn't a free-for-all, though. The bill sets strict conditions for the Roth IRA you are rolling over. First, it must be the only Roth IRA you maintain during that tax year (with one small exception). Second, the balance in that Roth IRA must not exceed a specific limit defined elsewhere in the tax code (Section 401(a)(31)(B)(ii)). If you meet these conditions, the entire transfer is treated as a tax-free rollover, effective for distributions occurring after the Act is enacted.

The Consolidation Play: Why This Matters

For many people, retirement savings get scattered over time. You might have a small Roth IRA from an old brokerage account sitting alongside your current employer’s Roth 401(k). This bill is a win for consolidation. Think of it as finally being able to merge those small, orphaned accounts into one big, easy-to-track account at work.

For example, if you’re a software developer who opened a small Roth IRA five years ago, but now you’re contributing heavily to your company’s Roth 401(k), this bill lets you move that old money in. This simplifies your life because you only have one statement to check and one set of rules to follow. The bill specifies that when the money moves, it keeps its original status—it’s treated as your investment (cost basis) in the new account, which is crucial for future tax-free withdrawals.

Simplifying the Five-Year Clock

One of the trickiest parts of Roth accounts is the “five-year clock.” To take tax-free qualified distributions, the money must generally be in a Roth account for five years. This bill helps simplify that tracking when you roll over funds.

Specifically, the bill allows the receiving Roth 401(k) to use the earliest possible start date for this five-year nonexclusion period. This means if the money you’re rolling over originated from an old employer plan that automatically transferred into that Roth IRA, the five-year clock might start ticking from when you first contributed to that original plan. This is a huge administrative headache lifted, ensuring that your savings don't get penalized just for being moved around.

Who Gets Left Out?

While this is a great flexibility move, the bill’s conditions mean it’s primarily designed for people with relatively small, simple Roth IRA setups. If you’re a savvy investor who maintains multiple Roth IRAs for different strategies, or if your Roth IRA balance exceeds the specified limit, you won't be able to use this specific direct rollover mechanism. You’ll still have to navigate the existing, more complex rules. The requirement to only maintain one Roth IRA during the rollover year is a strict gatekeeper, so anyone with scattered accounts needs to pay close attention to compliance to avoid running into tax issues down the road.