Summary#
This bill would change tax rules for 401(k) plans so certain workers can move money to an individual retirement annuity while still working. It also adds a detailed safe-harbor notice that plan administrators can use when explaining rollover options to participants. The stated goal is to simplify and clarify how pre-retirement rollovers and rollover notices work.
- Main change: Plans may allow participants age 50 or older to do a direct rollover of their accrued benefit (the part tied to certain employer contributions) to an individual retirement annuity while still employed.
- Notice change: The bill adds a safe-harbor written explanation that lists specific items plans must include (for example: a 30‑day review period, tax withholding rules, items not eligible for rollover, and the 60‑day rollover rule).
- Small-balance rule: The notice language lets plans automatically pay or roll over benefits smaller than $7,000 to an IRA or Roth IRA a plan establishes for the participant.
- Withholding clarity: The bill says direct rollovers are not subject to the mandatory 20% withholding that applies to some distributions.
- Effective date: The changes apply for taxable years beginning after December 31, 2026.
What it means for you#
- Workers age 50 or older: You could be allowed, while still working, to move some of your accrued benefit that comes from employer contributions into an individual retirement annuity (a type of standalone retirement contract). The plan only "may" allow this — plans are not forced to offer it.
- Workers under 50: The bill does not change rollover options for people younger than 50.
- Plan participants with small balances: Plans may automatically pay or roll over balances under $7,000 into an IRA or a Roth IRA the plan sets up for you.
- Employers and plan sponsors: Plans that choose to offer this option will need to add the rollover option and provide the new written explanation to affected participants.
- Plan administrators and recordkeepers: You will likely need to update plan documents, participant notices, and operational procedures to offer the rollover option and to use the safe-harbor notice language.
- IRA and annuity providers: More workers may move plan funds into individual retirement annuities, which could increase business for annuity sellers and IRA custodians.
- All taxpayers receiving distributions: The safe-harbor notice must explain withholding, the 60‑day rollover window, and potential early withdrawal tax (10% before age 59½) in clear language.
Expenses#
No publicly available information.
- The bill itself does not include a fiscal note in the supplied material.
- Likely administrative costs (not estimated): plan and recordkeeper changes to systems, drafting new plan documents and notices, training staff, and answering participant questions.
- Possible costs for employers: legal and compliance work to decide whether to adopt the optional rollover and to implement it.
- Possible costs or fees for participants: if money is moved to an individual retirement annuity, participants may face annuity-specific fees or different investment costs (the bill does not estimate these).
Proponents' View#
- The bill appears intended to give older workers more flexibility to move employer-contributed retirement money into an individual annuity while still working.
- The added safe-harbor notice could make required rollover information clearer and help participants understand tax and withholding consequences.
- Clarifying that direct rollovers are not subject to mandatory 20% withholding could reduce surprise withholding when someone moves money directly between plans or into an annuity.
- The small-balance language could simplify handling of very small accounts by allowing automatic rollover or payment.
Opponents' View#
- One concern is that the bill lets plans "may" offer the rollover rather than requiring it; access will depend on whether employers adopt the change.
- The bill is unclear about which employer contributions qualify for the in‑service rollover. The phrase "employer contributions made pursuant to the employee's election" could be read in different ways, and the bill does not define it.
- Moving employer-contributed amounts out of employer plans could reduce pooled investment advantages or change how plans manage liabilities; the bill does not analyze those effects.
- Administrative burden and costs are not estimated. Plans, recordkeepers, and employers may face extra compliance and operational work to implement the option and provide the new notice language.
- The bill does not estimate participant-level impacts such as differences in fees, protections, or investment options when funds move from a plan into an individual annuity. These differences could matter for retirement outcomes but are not addressed in the text.