Retirement Simplification and Clarity Act

In-service Rollovers: A plan may allow a participant who is 50 or older to elect a direct rollover of all or part of their employer-contributed benefits to an individual retirement annuity. (Section 2(a))

Tax Deferral: Taxpayers can defer Federal income tax on eligible distributions by rolling them over to another qualified plan or individual retirement arrangement. (Section 2(b)(2)(A)(vi))

Simplified Information: The bill provides a framework for written explanations that use concise, plain language to inform taxpayers of their rights and obligations. (Section 2(b)(2)(A))

Transferring Employers: When changing employers, a taxpayer can roll over eligible amounts to a new plan or an individual retirement account, or choose to leave the amounts in their original plan. (Section 2(b)(2)(A)(ix-x))

Direct Rollover Advantages: Direct rollovers are not subject to the mandatory 20 percent withholding and can be handled via check or electronic transfer. (Section 2(b)(2)(A)(xii))

Tax Consequences for Early Distributions: Taxpayers may owe an additional 10 percent tax if they take a distribution before reaching age 59 1/2. (Section 2(b)(2)(A)(iii))

Income Tax Withholding: Distributions made directly to a taxpayer are subject to income tax withholding and added to gross income. (Section 2(b)(2)(A)(ii))

Withholding on Ineligible Distributions: A 20 percent income tax withholding applies to distributions that are not eligible for rollover. (Section 2(b)(2)(A)(iv))

Distribution Limitations: Certain types of payments cannot be rolled over, including required minimum distributions, hardship distributions, certain series of payments, employee stock ownership plan dividends, and corrective distributions. (Section 2(b)(2)(A)(vi))

Mandatory Distributions: A plan may require a taxpayer to take a distribution once they reach the plan's retirement age. (Section 2(b)(2)(A)(viii))