Non-qualified withdrawal from Simple IRA
Participant took a non-qualified withdrawal from his Simple IRA and now would like to fund Simple with the monies that were distributed to them in the withdrawal. Can he do this? Are there any penalties? Are there any tax consequences? Are there any time retrictions, such as the 60 day restriction for IRAs?
Permalink Submitted by Alan Spross on Fri, 2007-09-07 03:37
The distribution can be rolled back to the SIMPLE IRA or another SIMPLE IRA within the 60 day period subject to the usual rollover rules. That would be reported as a non taxable rollover.
If the 60 day period has been exceeded, the distribution will be taxable and the 25% penalty may apply if the 2 year restriction has not been meant. Is this the case?
Permalink Submitted by John Moylan Kim Kropp on Fri, 2007-09-07 14:14
So the client can add the withdrawn monies to his simple IRA. We had another response that said they could not add if they were an employee with a W-2 from the employer unless it was through the employees elective salary deferral? Is this accurate or can the client submit a personal check to their Simple IRA?
Permalink Submitted by Alan Spross on Fri, 2007-09-07 20:42
Sorry, my prior post was partially incorrect, so glad you questioned it. Client can roll over ONLY to another SIMPLE IRA, but cannot roll the funds back into the same SIMPLE IRA they were distributed from, as could be done with a traditional IRA.
In this case, there may be no solution to taxation of that distribution, and if under 2 years in the plan, a 25% penalty instead of 10%. If the plan offers an option of increasing the contribution on some periodic date, then increasing the contribution may offset some of the tax from the distribution.