SIMPLE IRA Rollovers
SIMPLE IRAs enable employers to match employee deferrals up to 3% of compensation or make a non-elective contribution of up to 2%; additionally, employers can choose an accelerated vesting schedule.
Rollovers from a SIMPLE IRA are only eligible after two years have passed since participation, otherwise distributions could be taxed and subject to penalties if taken prior to this timeframe.
Can I roll my 401(k) into a SIMPLE IRA?
SIMPLE IRAs are employer-sponsored retirement plans tailored to businesses with 100 or fewer employees, offering companies matching contributions dollar for dollar up to a specified percentage of salary. Employees may transfer money between SIMPLE IRAs according to procedures of each financial institution holding their account.
Contrary to traditional IRAs, SIMPLE IRA plans do not impose vesting requirements on employer contributions made through employer payroll deductions. Therefore, any employee earning $5,000 in two consecutive years or is expected to do so this year can participate in such plans – though employers can tailor them with more restrictive eligibility criteria if desired.
Employees withdrawing funds before two years have passed are subject to an extra tax of 25% in addition to the standard 10% penalty, intended as an incentive for workers to remain invested and not as an obstacle against rolling their money to other types of IRAs or qualified retirement plans after this two-year period.
Can I roll my SIMPLE IRA into a 401(k)?
Yes, with some restrictions. SIMPLE IRAs can accept rollovers from traditional IRAs and employer retirement plans like 401(k), but cannot receive such transfers from Roth IRAs or Roth 401(k) plans.
Employers are required to deposit employee deferrals into SIMPLE IRA accounts within seven days of having deducted them from employees’ paychecks, in order to comply with IRS safe harbor rules for plan assets and ensure all employer contributions made directly vest instantly, unlike with 401(k).
If you are transitioning from a SIMPLE IRA into another tax-deferred account such as a 401(k), be aware that withdrawing before two years have passed could incur an extra 25% penalty tax. There may be exceptions, but generally speaking it’s wiser to avoid extra taxes where possible.
Can I roll my SIMPLE IRA into a Traditional IRA?
The IRS allows SIMPLE IRAs to accept rollovers from traditional and simplified employee pension IRAs (SEP IRAs), employer sponsored plans like 401(k), 403(b) plans and 457(b) plans; however an individual must wait two years before rolling money from her SIMPLE IRA into another plan type; otherwise the IRS will treat the transaction as taxable distributions from her SIMPLE IRA.
A SIMPLE IRA is a workplace retirement plan that enables employees to defer a portion of their salary into retirement savings accounts. Employers may match employee contributions up to 3% of compensation or may provide flat contributions based on each employee’s compensation.
Plan is available exclusively to businesses with 100 or fewer employees that do not currently offer other workplace retirement plans, and eligible employees must have earned at least $5,000 over two previous years and are expected to make at least $5,000 during 2019.
Can I roll my SIMPLE IRA into a Roth IRA?
SIMPLE IRAs offer employees more investment choices than most employer-sponsored retirement plans do, permitting them to choose any asset or financial instrument and invest it tax deferred until withdrawal or transfer to another account occurs.
SIMPLE IRAs offer small business owners an inexpensive solution, as they’re easy to operate and feature a range of investment options that take the stress off the employer.
Plan sponsors must provide all participants with a summary description of the SIMPLE IRA plan (IRS Form 5304 or 5305-SIMPLE or the plan document provided by financial institution), outlining participant rights and responsibilities, withdrawal procedures and transfers procedures, keeping up-to-date as laws change, as well as offering eligible employees an equivalent 401(k) replacement plan if a plan is terminated midyear.
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