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's the difference between outsourcing and insourcing?

    Discover that costs, resources, control and location are some of the major differences for an organization when deciding ...
  3. What is human capital and how is it used?

    Learn about the concept of human capital, how it is developed and why it is important for businesses to protect their human ...
  4. Do employers use agency theory in labor relations?

    Learn more about how agency theory works and how it is used to illustrate relationships between principals and agents in ...
RELATED TERMS
  1. Self Invested Personal Pension (SIPP)

    A tax-efficient retirement savings account available in Great ...
  2. Back Pay

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

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

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

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

    A federal statute protecting "certain applicants and employees" ...

You May Also Like

Related Articles
  1. Retirement

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

  2. Professionals

    Are Longevity Annuities in 401(k)s a ...

  3. Stock Analysis

    Will American Airlines Fall Back To ...

  4. Stock Analysis

    3 Things I Learned From The Container ...

  5. Stock Analysis

    Qualcomm's New Buyback Program Is Well-Timed

Trading Center