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. If an employee covered by a SIMPLE leaves his employer within the two-year period ...

    During the first two years after the SIMPLE IRA is established, assets held in the SIMPLE must not be transferred or rolled ... Read Answer >>
  2. I am 59 (not 59.5) and my husband is 65. We have participated in a SIMPLE IRA with ...

    During the first two years after a SIMPLE IRA is established, assets held in the SIMPLE IRA must not be transferred or rolled ... Read Answer >>
Related Articles
  1. Retirement

    SIMPLE IRA Plans: Are They Really Simple?

    Contrary to what their name implies, SIMPLE IRA plans aren't always simple for an employer.
  2. Taxes

    Unexpected 1099-R Form: What To Do

    Did your IRA custodian report distributions you thought were non-reportable? Find out what went wrong.
  3. Financial Advisor

    SIMPLE IRA Tutorial

    This comprehensive guide goes through what a SIMPLE IRA is, how to set one up, contribute to it and withdraw from it.
  4. Retirement

    Moving Retirement Plan Assets: How To Avoid Mistakes

    Sometimes things go wrong in a simple transfer of funds. Make sure you know how to avoid penalties.
  5. Retirement

    Avoid the Most Common IRA Rollover Mistakes

    Avoid paying excess taxes by learning some simple transfer rules.
  6. Retirement

    SIMPLE IRA Vs SIMPLE 401(k) Plans

    See the differences that may cause an employer to choose one plan over the other.
RELATED TERMS
  1. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  2. IRA Plan

    A plan that individuals may establish to arrange and plan for ...
  3. Rollover IRA

    A special type of traditional individual retirement account into ...
  4. Spousal IRA

    A type of individual retirement account that allows a working ...
  5. Revoked IRA

    An IRA holder may revoke an IRA within the 7 days after the IRA ...
  6. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
Hot Definitions
  1. Restricted Stock Unit

    Compensation offered by an employer to an employee in the form of company stock. The employee does not receive the stock ...
  2. Operating Ratio

    A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Calculated as:
  3. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  4. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  5. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center