Retirement Simplification and Clarity Act

This bill amends the Internal Revenue Code to allow certain older workers to roll over employer contributions from a 401(k) plan into an individual retirement annuity, and to simplify the written explanation that plans must give to participants about their distribution and rollover options.

Sec. 2, In-service rollovers for annuity purchases: The bill adds a new rule to section 401(k) of the tax code. It allows a retirement plan to let a participant who is age 50 or older to elect a direct rollover of all or part of their accrued benefit from employer contributions (made under the employee's election) into an individual retirement annuity. This is allowed even though the plan normally would not permit such a distribution before retirement.

The bill also adds a safe harbor for the written explanation that plans must give to participants before making a distribution. If the explanation includes the following information in plain language, it will satisfy the legal requirement: the taxpayer has 30 days to review the explanation; direct distributions are taxable and subject to withholding; an extra 10% tax may apply before age 59½; a 20% withholding applies to non-rollover distributions; the taxpayer can defer tax by rolling over eligible amounts; certain payments (like required minimum distributions, hardship distributions, and series of payments) cannot be rolled over; the plan administrator can answer rollover questions; the plan may require a distribution at retirement age or automatically pay small benefits; eligible amounts can be rolled over when changing employers; the taxpayer can leave money in the old plan; rollovers can go to an IRA, annuity, or Roth IRA; direct rollovers avoid 20% withholding; the taxpayer has 60 days to complete a rollover after receiving a payment; and the IRS can provide more information. The Treasury Secretary may issue regulations to update this list.

The changes apply to taxable years beginning after December 31, 2026.