A:

During the first two years after the SIMPLE IRA is established, assets held in the SIMPLE must not be transferred or rolled to another retirement plan. This two-year period, to which you refer in your question, begins the first day the employer deposits a contribution to the SIMPLE. Distributions that happen during the two-year period are subjected to an early-distribution penalty of 25% if the SIMPLE IRA owner is under age 59.5 at the time of the distribution.

However, the two-year waiting period does not apply to transfers or rollovers between two SIMPLE IRAs.

Therefore, the employee who is no longer with the employer that sponsored the SIMPLE may either leave the assets in the SIMPLE at the current financial institution or have the assets transferred, or rolled over, to a SIMPLE at another financial institution until the two-year waiting period is over. Under the SIMPLE requirements, an employer must allow an employee to hold his/her assets at another financial institution.

To establish a SIMPLE IRA for the employee, most financial institutions will require that the SIMPLE IRA owner (the employee) complete his/her SIMPLE IRA adoption agreement and will also require a copy of the Form 5304-SIMPLE or Form 5305-SIMPLE that the employer completed to establish the SIMPLE IRA. Once the new account has been established, the transfer can happen.

After the two-year period, the employee may move assets in a SIMPLE to another eligible retirement plan by means of a transfer, a rollover (including a direct rollover) or a Roth conversion.

To learn more, see SIMPLE IRA Tutorial, Moving Your Plan Assets? and Rollovers Of After-Tax Assets May Change The Landscape Of Your IRA.


This question was answered by Denise Appleby
(Contact Denise)

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

    First, some background: during the first two years after a SIMPLE IRA is established, assets held in the SIMPLE must not ... 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 >>
  3. What are the differences between a Simple IRA and a Traditional IRA?

    SIMPLE and traditional IRAs are retirement savings vehicles that differ in their early distribution penalties and in who ... Read Answer >>
  4. Can I obtain a Simple IRA if I am self-employed?

    Investing for retirement when self-employed can be in a SIMPLE IRA, a SEP IRA or a 401(k) plan, depending on the scenario ... Read Answer >>
  5. Are Simple IRA plans subject to ERISA?

    Learn how the Employee Retirement Investment Security Act, or ERISA, guides the administration of Savings Incentive Match ... Read Answer >>
  6. How do I roll over a Simple IRA to a Roth IRA?

Related Articles
  1. Retirement

    Benefits Of A SIMPLE IRA

    If you're at a small company, you may be offered a SIMPLE IRA retirement plan. Contribution limits are lower, but vesting is instant, with other benefits.
  2. 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.
  3. Taxes

    Unexpected 1099-R Form: What To Do

    Did your IRA custodian report distributions you thought were non-reportable? Find out what went wrong.
  4. Retirement

    Avoid the Most Common IRA Rollover Mistakes

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

    Analyzing The Best Retirement Plans And Investment Options: Individual Retirement Accounts (IRAs)

    What they are: An individual savings account with tax incentives. Pros: Tax benefits - investments grow tax-deferred and contributions may be deductible; variety of investment options ...
  6. Retirement

    Traditional IRAs: Contributions

    By Denise ApplebyFunding an IRA A Traditional IRA can be funded by several sources and means: Regular IRA contributions Spousal IRA contributions Transfers Rollover contributions Regular IRA ...
  7. Retirement

    Avoid Taxes on IRA Rollovers

    For years, IRA owners have been allowed to roll over their money from one IRA to another once a year without penalty, for each IRA account they had. A tax court ruling in January 2014 has brought ...
  8. Taxes

    How After-Tax Rollovers Affect Your IRA

    Consolidating retirement assets? Make sure you account for pre-tax and after-tax assets separately.
  9. Retirement

    How IRS Form 5498 Helps You

    If you have an IRA, you'll be getting this form. Here's the useful information it contains.
  10. Financial Advisors

    IRA Holders Face New Rules in 2015

    New rules for IRA holders mean less loopholes in 2015.
RELATED TERMS
  1. Savings Incentive Match Plan For Employees Of Small Employers - SIMPLE

    A retirement plan that may be established by employers, including ...
  2. Individual Retirement Account - IRA

    An investing tool used by individuals to earn and earmark funds ...
  3. IRA Transfer

    The transfer of funds from an Individual Retirement Account (IRA) ...
  4. IRA Plan

    A plan that individuals may establish to arrange and plan for ...
  5. Eligible Rollover Distribution

    A distribution from an IRA, qualified plan, 403(b) plan or 457 ...
  6. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
Trading Center