2-year rule on SIMPLE-to-SIMPLE
Just fact-checking.
If taxpayer has a SIMPLE with Employer A, and within the two-year period, rolls the funds into a SIMPLE sponsored by their new Employer B, does the two-year clock “reset” on that original money (deposited while with Employer A)?
And does the new money deposited into Employer B’s SIMPLE have its own two-year clock? Or does the original two-year clock (e.g. from the first date money was deposited into the Employer A SIMPLE), once satisfied, make ALL of a client’s SIMPLEs eligible for rollover to a traditional IRA?
Permalink Submitted by William Tuttle on Tue, 2021-03-09 21:17
The clock starts on the date of the first contribution to the first plan.
An employer may, but is not required to take into account the participant’s evidence of the date of the first contribution to a previous plan.
If the 2nd employer takes into account your evidence of the date of the first contribution to the 1st plan. The 1099-R of distributions after the 2-year anniversary of the first contribution to the 1st plan will be code as a normal distribution.
If the 2nd employer does not take into account your evidence of the date of first contribution to the 1st plan. The 1099-R of distributions after the 2-year anniversary of the first contribitions to the 1st plan, but not the 2nd anniversary of the first contribution to the 2nd plan will have Box 7 Code Early distribution, no known exception. This will be subject to the 25% penalty and ineligible for rollover.
You could do this anyway and file Form 5329 with the “other” exception and provide an explanation and proof; “Gentlemen, prepare to defend yourselves!
A couple people I have helped deal with this have said they would have waited the two years after the first contribution at the second plan if they had known the hassle involved. They both received CP2000 notices even though they provided proof was in black and white of the date of first contribution. However after back and forth with the IRS, no penalty applied.
This is for information only and should not be construed as tax advice. YMMV and there is no guarantee you get a favorable result.