Simple IRA
Hi,
I have someone who has a simple IRA. It was only opened through his employer a couple of months ago. He has not quit and wants to roll over the simple IRA. I explained the 25% penalty in the first 2 years. He is asking if he can still contribute to it. I haven’t responded yet but I am thinking that unless he is able to use this for a different employer, that he really cannot. Am I thinking correctly?
Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2022-11-07 17:04
This is a very bad idea. In addition to the 25% penalty, the SIMPLE IRA distribution is NOT eligible for rollover to any plan that is not another SIMPLE IRA. That means ordinary income tax will be due plus the 25% penalty, and the funds will no longer be in any type of IRA. If he does take the costly distribution, he can still continue to contribute to the SIMPLE IRA. If his rollover intent is driven by the high costs of SIMPLE plan with a DFI, he might consider a transfer SIMPLE IRA option as that avoids tax and penalty, but still can be a hassle to execute.