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Permit In-Service Rollovers to IRA Annuities

Full Title:
Retirement Simplification and Clarity Act

Summary#

This bill lets some workers move certain employer retirement contributions out of their workplace 401(k) plan and into an individual retirement annuity (a type of IRA annuity) while still working. It also adds a clear, plain-language safe-harbor notice that plans can use to explain rollover rules and warnings. The bill aims to give older workers more choice and to make rollover information easier to understand.

  • Main change: Plans may allow participants aged 50 or older to elect a direct rollover of accrued benefits that come from employer contributions (those made because the employee elected them) to an individual retirement annuity (an IRA annuity) before retirement.
  • Notice change: The bill creates a safe-harbor written notice format that plans can use. The notice must be in plain language and must include specific points such as a 30-day review period, withholding and tax consequences, rollover options, and items that cannot be rolled over.
  • Timing: The changes apply to tax years starting after December 31, 2025.
  • Who may roll over: The new in-service rollover option applies only to participants age 50 or older and only to certain employer-contributed amounts described in the bill.
  • What is unclear: The bill’s phrase about employer contributions “made pursuant to the employee’s election” is not further explained in the text. It is not fully clear which employer contributions (for example, matching, safe-harbor, or other types) are covered.

What it means for you#

  • Workers age 50 and older: You could be allowed to move some employer-contributed retirement money out of your employer’s 401(k) while you are still employed. This would be done as a direct rollover into an individual retirement annuity (IRA annuity), which generally keeps the money tax-deferred if done correctly.
  • Workers under 50: The bill does not change in-service rollover rules for people younger than 50.
  • Plan participants thinking about rollovers: The plan must be able to provide a written plain-language notice that explains withholding, early-distribution penalties, and rollover choices. You would have 30 days to review the notice before taking action.
  • Plan administrators and employers: Plans that want to offer this option would need to decide whether to allow these in-service rollovers, update plan documents and notices to match the new safe-harbor language, and handle direct rollover transactions to individual retirement annuities.
  • IRA and annuity providers: If plans offer these rollovers, IRA annuity issuers may see more incoming rollovers from employed participants age 50+.
  • Retirement planners and advisers: You may need to explain to clients how a rollover to an individual retirement annuity differs from staying in the plan or rolling to a regular IRA, including effects on fees, investment choices, and access to funds.

Expenses#

No publicly available information.

  • Possible administrative costs for employers and plan administrators to update plan documents, create or adopt the new safe-harbor notice, and handle additional rollover transactions.
  • Possible recordkeeping, compliance, and systems costs to support direct rollovers to individual retirement annuities.
  • Possible costs for IRA/annuity providers to process and manage rollovers.
  • The bill text does not include a federal budget estimate or fiscal note showing direct government spending or savings.

Proponents' View#

The bill appears intended to increase choice and clarity for older workers and plans. Possible arguments in favor, based on the bill text, include:

  • The bill appears intended to give workers age 50+ more flexibility to move employer-contributed amounts into an individual retirement annuity while still employed.
  • The added safe-harbor notice standard appears intended to make rollover information clearer and more consistent by requiring plain language and specific points (30-day review, withholding rules, what cannot be rolled over).
  • Allowing direct rollovers to an individual retirement annuity could help some participants consolidate accounts or move money into products they consider better suited to their retirement goals.
  • The 30-day review requirement gives participants a short cooling-off period to consider options before acting.

Opponents' View#

The bill’s design raises several possible concerns based on the text and missing details:

  • One concern is that permitting in-service rollovers of employer contributions could lead to more retirementsavings leaving employer plans before retirement, which could reduce plan scale and increase per-participant costs.
  • The bill does not fully define which employer contributions qualify (the phrase “made pursuant to the employee’s election” is not explained). This lack of clarity may cause confusion for plan administrators and participants.
  • Allowing rollovers before retirement could increase the number of transactions plans must process, creating administrative and compliance burdens and costs.
  • There may be potential for participant confusion about tax and penalty rules (for example, the 10% additional tax on distributions before age 59½) even with the notice; outcomes will depend on how clearly plans implement the notice.
  • The bill does not include a fiscal estimate, so it is unclear what federal or private-sector costs would follow from broader use of these rollovers.