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)

  1. How do I roll over a Simple IRA to a Roth IRA?

    If you leave your job and a Simple IRA behind, you have the option to roll over the Simple IRA balance to a Traditional IRA, ... Read Full Answer >>
  2. How can I determine if a longevity annuity is right for me?

    A longevity annuity may be right for an individual if, based on his current health and a family history of longevity, he ... Read Full Answer >>
  3. How does a Roth IRA grow over time?

    Your Roth IRA account grows over time thanks to two funding sources: contributions and earnings. While your contributions ... Read Full Answer >>
  4. Can my 401(k) be seized or garnished?

    As long as your retirement funds are held in your 401(k) and you do not take them as distributions, your 401(k) cannot be ... Read Full Answer >>
  5. Can my IRA be taken in a lawsuit?

    Whether your IRA can be taken in a lawsuit depends largely on your state of residence and the judgment in question. There ... Read Full Answer >>
  6. Are mutual funds considered retirement accounts?

    Unlike a 401(k) or Individual Retirement Account (IRA), mutual funds are not classified as retirement accounts. Employers ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    What Target-Date Funds Can Teach About Investing

    Target-date funds are a popular way to invest for retirement. Here's what they can teach the novice investor.
  2. Fundamental Analysis

    The Basics Of Corporate Structure

    CEOs, CFOs, presidents and vice presidents: learn how to tell the difference.
  3. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  4. Professionals

    How to Protect Retirement and Help Adult Kids

    Parents can both protect their retirement money and help their adult kids. Here's how.
  5. Retirement

    10 Ways to Save Your Retirement: It's Not Too Late

    It's not too late to start saving for your retirement, even if you took longer to start thinking about it and doing something about it.
  6. Investing

    10 Ways to Effectively Save for the Future

    Savings is as crucial as ever, as we deal with life changes and our needs for the future. Here are some essential steps to get started, now.
  7. Professionals

    How to Protect Your Portfolio from a Market Crash

    Although market crashes are usually bad news for your portfolio, there are several ways to minimize losses or even profit outright from market movement.
  8. Retirement

    How Robo-Advisors Can Help You and Your Portfolio

    Robo-advisors can add a layer of affordable help and insight to most people's portfolio management efforts, especially as the market continues to mature.
  9. Professionals

    3 Benefits of Working Longer (and Retiring Later)

    There are many reasons why folks in their 60s may want to keep working until at least age 70. Here are three.
  10. Professionals

    4 Ways Companies Can Relieve Workplace Stress

    Workplace stress can cost companies tons of money in lost productivity and absenteeism. Some of that is out of their control, but often they are the cause.
  1. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  2. Corporate Culture

    The beliefs and behaviors that determine how a company's employees ...
  3. Sticky Wage Theory

    An economic hypothesis theorizing that pay of employees tends ...
  4. Earnings Before Interest & Tax - EBIT

    An indicator of a company's profitability, calculated as revenue ...
  5. Record Date

    The cut-off date established by a company in order to determine ...
  6. Corporate Social Responsibility

    Corporate initiative to assess and take responsibility for the ...

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!