Clarification on SIMPLE IRA 2 Year Rule and Annual Notification Requirement

Submitted by Jack Thomas on Mon, 2014-10-27 19:25

According to IRS Pub 560, part of the annual notification that needs to go out to employees (if the employer is using a designated financial institution) would state “the employee can transfer his or her balance without cost or penalty…” (Pub 560 pg 10).

Two questions:

1. Wouldn’t a statement like this be misleading in that it is not addressing the 2 year rule and say the employee takes funds from the SIMPLE and does a trustee to trustee transfer to a TIRA in the first year of participating in the plan?

2. And just to confirm, the 2 year window doesn’t apply if the employee transfers the funds to another SIMPLE, is that correct? And it could even be a SIMPLE at another employer, is that correct?

Thanks for your help.



Submitted by Alan - IRA critic on Mon, 2014-10-27 23:28

  1. Not misleading but possibly confusing, since a transfer to another DFI means the SIMPLE IRA is moving to another SIMPLE IRA account since a DFI only applies to SIMPLE accounts, and there is no 2 year waiting period on SIMPLE to SIMPLE IRA transfers or rollovers.
  2. Correct. The funds can be moved to another SIMPLE IRA by direct transfer or 60 day rollover with no 2 year waiting period. 

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