Retirement Rollover Flexibility Act
- Bill Number
- H.R. 6450
- Origin Chamber
- House
- Congress
- 119th Congress, Session 1
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2025-12-04: Referred to the House Committee on Ways and Means.
- Last Updated
- 2026-01-06T16:06:52Z
AI-Generated Summary
Purpose
The Retirement Rollover Flexibility Act (H.R. 6450) aims to increase flexibility in managing retirement savings by allowing tax-free rollovers from Roth Individual Retirement Accounts (Roth IRAs)—a type of personal retirement savings account where contributions are made with after-tax dollars—to designated Roth accounts, which are Roth-style options within employer-sponsored retirement plans like 401(k)s. This promotes easier consolidation of retirement funds, especially during job changes.
Key Provisions
- Rollover Eligibility: Permits direct trustee-to-trustee transfers (where funds move straight from one financial institution to another without the individual touching them) from an "eligible Roth IRA" to a designated Roth account. An eligible Roth IRA is defined as the individual's only Roth IRA (excluding certain inherited ones) with a balance not exceeding the limit for automatic rollovers from employer plans (generally up to $7,000, adjusted for inflation).
- Tax Treatment: These rollovers are treated as non-taxable distributions from the Roth IRA and as eligible rollover contributions to the designated Roth account. Earnings from the original Roth IRA are considered part of the individual's investment basis (meaning they aren't taxed again upon withdrawal, as long as rules are followed).
- Automatic Portability Integration: Specifically allows such rollovers in "automatic portability transactions," where small balances from a former employer's plan are automatically rolled into a new employer's plan or an IRA to prevent "orphan" accounts. For these, the bill coordinates rules on when Roth account withdrawals can be tax-free, using the start date of contributions to the original employer plan.
- Effective Date: Applies to distributions or payments made after the date the law is enacted.
Significant Changes to Existing Law
- Expansion of Rollover Rules: Under current Internal Revenue Code (IRC) Section 408, rollovers from Roth IRAs are generally limited to other Roth IRAs or certain qualified plans, but direct transfers to designated Roth accounts were not explicitly allowed as non-taxable. The bill amends IRC Sections 408(d)(3) and 402A(c)(3) to explicitly include these transfers, closing a gap that could previously result in taxable events.
- New Definitions and Exceptions: Introduces the concept of an "eligible Roth IRA" with strict limits (e.g., only one account and a capped balance) to prevent abuse. It also adds special handling for earnings under IRC Section 402A(d)(6), treating the full rollover amount as non-taxable investment, and updates the five-year "nonexclusion period" (the waiting period before tax-free withdrawals) for automatic portability cases to align with the original plan's contribution history.
- No Changes to Contribution Limits: Does not alter annual contribution caps or income eligibility for Roth accounts but focuses solely on movement of existing funds.
Potential Impacts
- On Individuals: Enables savers to consolidate retirement accounts more easily without tax penalties, reducing administrative hassle and potentially lowering fees from multiple accounts. This is particularly helpful for workers changing jobs, as it supports automatic rollovers of small balances (under $7,000) to avoid cash-outs that trigger taxes and early withdrawal penalties (if under age 59½).
- On Government Agencies: The Internal Revenue Service (IRS) may see simplified enforcement of rollover rules but could face initial administrative updates to guidance and forms. No major new reporting burdens are imposed.
- On Financial Institutions and Employers: Plan administrators and IRA custodians benefit from clearer rules for handling transfers, potentially increasing participation in employer Roth accounts. It encourages use of automatic portability services, which could reduce "leakage" from the retirement system (where savers lose access to funds).
- Broader Economic Effects: By preserving tax-advantaged savings, the bill could modestly boost long-term retirement security and reduce future reliance on public programs like Social Security, without significant federal revenue loss since rollovers are already tax-deferred.
Main Stakeholders Affected
- Individual Retirement Savers: Primarily workers with Roth IRAs who switch jobs or want to move funds to employer plans, especially those with small balances vulnerable to automatic cash-outs.
- Employers and Plan Sponsors: Companies offering 401(k)-style plans with designated Roth options, who may see higher retention of employee savings through easier portability.
- Financial Service Providers: Banks, investment firms, and IRA trustees handling rollovers, including automatic portability providers, who gain operational clarity.
- Government: The IRS and Department of the Treasury, responsible for tax code enforcement and retirement policy.
Notable Legal, Constitutional, or Political Implications
- Legal Implications: Strengthens consistency in the IRC by aligning Roth IRA rules with those for employer plans, reducing ambiguity that could lead to disputes or audits. It builds on existing rollover frameworks (e.g., from the SECURE Act of 2019) without overriding prior tax treaties or creating new liabilities.
- Constitutional Implications: None significant; the bill involves straightforward tax code amendments under Congress's enumerated powers to lay and collect taxes (U.S. Constitution, Article I, Section 8), with no First Amendment, due process, or equal protection concerns.
- Political Implications: Represents bipartisan support (introduced by Rep. LaHood, R-IL, and Rep. Sanchez, D-CA) for pro-retirement policies, fitting into broader efforts to enhance savings portability amid concerns over America's retirement readiness. It avoids controversial elements like raising contribution limits, focusing on technical fixes that appeal across party lines without major fiscal debates.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Cosponsors (2)
Rep. Sánchez, Linda T. [D-CA-38], Rep. Vindman, Eugene Simon [D-VA-7]
Recent Actions
- 2025-12-04: Referred to the House Committee on Ways and Means.
- 2025-12-04: Introduced in House
- 2025-12-04: Introduced in House
Bill Versions
- Retirement Rollover Flexibility Act — issued 2025-12-04 — PDF (4 pages)