Retirement Simplification and Clarity Act

Pre-retirement rollover for older workers: Under Section 2(a), adding paragraph (17) to Section 401(k), a plan may allow a participant who is age 50 or older to elect a direct rollover of all or a portion of their accrued benefit attributable to employer contributions to an individual retirement annuity. This gives older workers more flexibility in managing their retirement funds while still employed.

Clearer explanations for taxpayers: Under Section 2(b), adding a safe harbor to Section 402(f), written explanations regarding distributions must include concise, plain language details. This helps taxpayers better understand their rights, tax withholdings, 30-day review periods, and rollover options.

Potential early distribution taxes: Under Section 2(b) detailing the safe harbor information, taxpayers are explicitly reminded that distributions made directly to them will be added to gross income and that they may owe an additional 10 percent tax on distributions issued before attaining age 59 1/2. This highlights the ongoing financial burdens and penalties associated with early withdrawals.

Forced distributions for small balances: Under Section 2(b) detailing the safe harbor information in clause (viii), a plan may require a taxpayer to take a distribution upon attaining the plan's retirement age, or automatically pay out benefits directly or into an IRA if the benefit is less than $7,000. This could force individuals to take payouts they might not currently want.