Older workers could use 401(k) money to buy annuities: bipartisan bill

As part of an ongoing effort to provide 401(k) investors with greater access to guaranteed income in retirement. bipartisan bill Congress would allow some workers to use their retirement savings to buy annuities outside of their own plans.

The Retirement Simplification and Clarity Act, or H.R. 6324, would allow employees age 50 and older to roll over some or all of their 401(k) assets into a qualified annuity while they are working. Although some plan sponsors may allow employees to make this move once they reach age 59½ (when distributions are no longer subject to the 10% early withdrawal penalty), this is generally not possible for younger employees.

“Most people can’t carry money right now [from their 401(k)] “As long as they are still enrolled, they will be tied to the annuity,” said David Chavern, President and CEO of the American Council of Life Insurers, which supports the bill. “This significantly limits their options as they begin to convert their accumulated savings into the income they need.”

But financial advisors say it’s not a slam dunk for consumers. Simply put, workers can benefit from leaving their money in a 401(k) where it can continue to grow.

Separately, the measure would require the IRS to update the official document provided to individuals when they leave employers and request distributions from their 401(k) plans.

This 402(f) statement outlines the former employee’s distribution options and tax consequences. The bill would require the IRS to redesign the notice in “clear and understandable language,” according to the office of Rep. Jimmy Panetta, D-Calif., who co-sponsored the bill with Rep. Darin LaHood, R-Ill.

Lawmakers introduced the bill in November and referred it to the House Ways and Means Committee. Although it has a handful of co-sponsors, it is unclear when or if the measure will advance through the legislative process.

Fear of not having enough income is common among savers: 66% worry they will run out of money in retirement, according to BlackRock’s 2025 Reading on Retirement survey. The majority (93 percent) said they want a guaranteed income during their golden years. BlackRock, which offers its own annuity products to 401(k) plans, surveyed more than 450 plan sponsors, 1,300 plan participants and 300 retirees in early 2025.

Additionally, more workers are reaching retirement age with a 401(k) and they need to figure out how to extend it throughout their lives. This is in stark contrast to decades ago, when it was more common to retire with a company-sponsored pension that provided stable income throughout retirement.

Annuities are a way to address savers’ concerns. Although an annuity includes an investment component, it is a contract: You hand over your money (often a lump sum) and the insurance company promises to make regular payments to you over years or decades.

Some 401(k) plans currently include various forms of annuities in their programs to help workers earn guaranteed income in retirement. The Secure Act of 2019, which made several changes to the U.S. retirement system, included a provision aimed at eliminating employers’ fear of legal liability if their chosen annuity provider fails or otherwise fails to deliver on their promises.

Some 401(k) plans may offer a standalone annuity option, while others offer annuity-enhanced target date funds. Black Rock is the largest provider of the latter and Vanguard introduced his own version last month.

Simply put, these are target date funds that allocate a portion of your money towards a future annuity purchase. Target date funds generally begin investing aggressively when you’re far from retirement and gradually shift to less risky investments as you get closer to leaving the workforce.

However, the number of 401(k) plans that offer some form of annuity remains low. As of early December, approximately $29 billion had been invested in these funds; This is a tiny fraction of the more than $4 trillion invested in target date strategies. According to Morningstar.

In other words, most retirement savers who have to put money into an annuity continue to do so after they leave their employers, rather than while they are working.

“For someone who is not retiring and is worried about running out of money, turning some of their 401(k) into a predictable monthly paycheck through an annuity can be valuable,” said certified financial planner Patrick Huey, owner and general counsel of Victory Independent Planning in Naples, Florida.

But doing so in your 50s might not be the best time to withdraw money from your 401(k) when you still have many years to work ahead of you, he said.

“I’d say most people are better off leaving [their money] “It’s in a 401(k) for savings,” Huey said. “However, there are times when a guaranteed future income may be warranted, especially for those with a very low risk preference.”