A:

First, some background: during the first two years after a SIMPLE IRA is established, assets held in the SIMPLE must not be transferred or rolled to another retirement plan. This two-year period begins the first day the employer deposits a contribution to the SIMPLE IRA. After the two-year period, assets in a SIMPLE IRA may be moved to another eligible retirement plan by means of a transfer, a rollover (including a direct rollover) or as a Roth conversion.

Distributions that occur during the two-year period are subjected to an early-distribution penalty of 25% if the SIMPLE IRA owner is under age 59.5 when the distribution occurs. If an exception applies, however, the 25% penalty is waived. Distributions that occur when the SIMPLE IRA holder is age 59.5 or older are not subjected to the early-distribution penalty, even if the distribution occurs within the two-year period.

Regarding your question, I am not aware of any divorce exception to the two-year rule. However, there is good news: the two-year waiting period does not apply to transfers or rollovers between two SIMPLE IRAs.

The employer may allow the spouse receiving the assets to establish a SIMPLE IRA. Usually, all that is required for the spouse to establish the SIMPLE is a copy of the Form 5304-SIMPLE or 5305-SIMPLE that was completed by the employer to establish the SIMPLE IRA and the custodian's SIMPLE IRA adoption agreement. The SIMPLE IRA adoption agreement must be completed by the spouse receiving the assets. The custodian determines whether any written authorization/confirmation from the employer is required to establish the SIMPLE for the spouse. The assets can then be transferred to the SIMPLE established for the spouse.

(For more about transferring IRA assets, check out Getting a Divorce?- Understand the Rule of Dividing Plan Assets, Moving Your Plan Assets? and Receiving an Unexpected Form 1099-R.)

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS

  1. What option strategies can I use to earn additional income when investing in the ...

    Discover how risk-averse investors need to build a retirement portfolio. The major factors are diversification and avoiding ...
  2. What is fiduciary liability insurance, and what are its benefits?

    Understand what fiduciary liability insurance is, what companies or individuals can benefit from having it, and when it is ...
  3. Should I purchase a master limited partnership (MLP) in my retirement account?

    Learn why investors may have to pay taxes on dividends from master limited partnerships, or MLPs, held in individual retirement ...
  4. What are the tax implications of owning a master limited partnership (MLP)?

    Learn about the tax benefits of owning units in a master limited partnership, and understand how distributions are treated ...
RELATED TERMS
  1. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  2. Self Invested Personal Pension (SIPP)

    A tax-efficient retirement savings account available in Great ...
  3. Senior Move Manager

    Senior move managers (SMMs) help seniors downsize and relocate ...
  4. Medigap

    Also called Medicare Supplement Insurance, Medigap is health ...
  5. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
  6. Gold IRA

    Definition of Gold IRA

You May Also Like

Related Articles
  1. Professionals

    5 Signs That You Have a Lousy 401(k) ...

  2. Entrepreneurship

    Why Small Business Owners Need Financial ...

  3. Savings

    Investing: How to Make Fast Money in ...

  4. Professionals

    How the Robo-Advisors Differ (& How ...

  5. Professionals

    Target Date Funds: More Popular, Cheaper ...

Trading Center