Is divorce an exception to the SIMPLE IRA's two-year waiting period rule?

By Denise Appleby AAA
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. How can I avoid paying taxes on my Social Security income?

    Learn how to calculate the percentage of Social Security income benefits that may be taxable, and discover strategies to ...
  2. What is the difference between a fixed and variable annuity?

    Understand the difference between fixed, variable and indexed annuities, and read a brief summary of their respective risks ...
  3. How does the Canada Pension Plan (CPP) work, and what asset mix does it hold?

    Learn the difference between a chartered financial analyst and the Canadian pension plan. Explore Canadian retirement options ...
  4. Is it a good idea to add a reverse mortgage to your retirement strategy?

    A reverse mortgage can be a great way to increase retirement income. Does it work for everyone? What happens after a homeowner ...
RELATED TERMS
  1. Senior Move Manager

    Senior move managers (SMMs) help seniors downsize and relocate ...
  2. Elder Care

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

    Definition of Gold IRA
  4. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  5. Death Master File (DMF)

    Also known as Social Security Death Index. A list of people whose ...
  6. Leveraged Benefits

    The use – by a business owner or professional practitioner – ...

You May Also Like

Related Articles
  1. Professionals

    Just Retired? No Better Time for a Second ...

  2. Professionals

    When Your Client's Retirement is Around ...

  3. Professionals

    A New Wake-up Call for Savers

  4. Professionals

    Retirement Bliss? Not So fast: When ...

  5. Professionals

    Multiple Accounts? Here's How to Calculate ...

Trading Center