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

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. 

This so-called 402(f) notice outlines the ex-employee’s distribution options and the tax implications. The bill would require the IRS to redesign the notice in “clear, straightforward language,” according to the office of Rep. Jimmy Panetta, D-Calif., who cosponsored the bill with Rep. Darin LaHood, R-Ill. 

Lawmakers introduced the bill in November and referred it to the House Committee on Ways and Means, where it remains. While it has a handful of cosponsors, it’s uncertain when or whether the measure will advance through the legislative process.

The fear of not having enough income is prevalent among savers: 66% worry they’ll run out of money in retirement, according to BlackRock’s 2025 Read on Retirement survey. The majority, 93%, said they want a guaranteed income in their golden years. BlackRock — which offers its own annuity products for 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 need to figure out how to stretch it over their lifetimes. That’s in contrast to decades ago, when it was more common to retire with a company-sponsored pension that delivered steady income throughout retirement.

Annuities are a way to address savers’ concerns. Although an annuity might include an investment component, it’s a contract: You hand over your money — often a lump sum — and the insurance company promises to issue regular payments to you across many years or decades.

Already, some 401(k) plans are incorporating annuities into their lineups in various forms to help workers secure guaranteed income in retirement. The Secure Act of 2019, which made a variety of changes to the U.S. retirement system, included a provision intended to eliminate employers’ fear of legal liability if their chosen annuity provider fails or otherwise doesn’t deliver on its promises.

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

In simple terms, these are target-date funds that allocate some of your money toward a future annuity purchase. Target-date funds overall start out invested 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 sort of annuity remains low. Roughly $29 billion is invested in these funds as of early December, which 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 end up putting money into an annuity are still doing so after they leave their employer, not while they are employed.

“For someone without a pension who is anxious about running out of money, converting part of a 401(k) into a predictable monthly paycheck via an income annuity can be valuable,” said certified financial planner Patrick Huey, owner and principal advisor at Victory Independent Planning in Naples, Florida.

However, he said, doing this in your 50s when you still have many years of working ahead of you may not be the best time to pull money out of your 401(k).

“I’d say most people are better off leaving [their money] in a 401(k) for accumulation,” Huey said. “But there are times when locking in a guaranteed future income … might be warranted, especially for those with very low risk preferences.”