As part of an ongoing effort to give 401(k) investors more access to guaranteed income in retirement, a bipartisan bill in Congress would allow some workers to use their retirement savings to buy annuities outside of their plan.
The Retirement Simplification and Clarity Act, or H.R. 6324, would let employees age 50 or older roll over part or all of their 401(k) assets into a qualified annuity while still working. Although some plan sponsors may allow workers to make this move once they reach age 59½ — when distributions no longer are subject to a 10% early withdrawal penalty — it is generally unavailable to younger employees.
“Right now, most people can’t move money [from their 401(k)] into an annuity while they are still enrolled,” said David Chavern, president and CEO of the American Council of Life Insurers, which supports the bill. “This significantly limits their options as they start to turn their accumulated savings into needed income.”
Financial advisors say that the move is not a slam dunk for consumers, however. In simple terms, workers may benefit from leaving their money in their 401(k), where it can continue growing.
Separately, the measure would require the IRS to update the official document that’s provided to individuals when they leave an employer and request a distribution from their 401(k) plan.
