If an employee covered by a SIMPLE leaves his employer within the two-year period and his new employer doesn't have a SIMPLE, what happens to the plan? Can the employee roll it over without penalty, or keep it at the old company until the two years expire

By Denise Appleby AAA
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. How do I roll over a Simple IRA to a Roth IRA?

    Convert your Simple IRA to a Roth IRA via rollover after you leave your job; you can also convert to a Roth if you are still ...
  2. What moral hazards are present with salaried employees?

    Discover that moral hazards are a common problem facing many companies today. The good news is that there are plenty of ways ...
  3. How has the Internet impacted Value-Added Network (VAN) providers?

    Discover how the advent of the Internet has challenged the Value-Added Network, or VAN, model of distributing electronic ...
  4. How do deferred tax assets help in meeting retirement goals?

    Learn how tax deferred assets can help individuals achieve long-term financial goals such as retirement and how they differ ...
RELATED TERMS
  1. Back Pay

    The amount of salary and other benefits that an employee claims ...
  2. Constructive Discharge Claim

    An insurance claim made by an employee who has quit his or her ...
  3. Separation Of Powers

    An organizational structure in which responsibilities, authorities, ...
  4. Lilly Ledbetter Fair Pay Act

    A federal law designed to ensure equal pay for all workers, regardless ...
  5. Age Discrimination In Employment Act Of 1967

    A federal statute protecting "certain applicants and employees" ...
  6. Civil Rights Act of 1964

    Landmark federal legislation that prohibits discrimination on ...

You May Also Like

Related Articles
  1. Retirement

    How do I roll over a Simple IRA to a ...

  2. Professionals

    Why Retirement Advice Is Better But ...

  3. Professionals

    Coming Soon: Private Equity In 401(k) ...

  4. Professionals

    Ways To Cut 401(k) Expenses

  5. Professionals

    Tread Carefully With Retirement Plan ...

Trading Center