SIMPLE IRA Rollovers.
I opened a SIMPLE IRA with my employer today. Can I roll my contributions over to an IRA on a monthly basis without any government penalties? I do not want my employer’s fund company.
I opened a SIMPLE IRA with my employer today. Can I roll my contributions over to an IRA on a monthly basis without any government penalties? I do not want my employer’s fund company.
Permalink Submitted by Alan Spross on Tue, 2012-01-24 22:04
No.
There is a 2 year waiting period before you can distribute funds from the SIMPLE IRA. This period begins on the date of the first contribution to your SIMPLE IRA. The penalty for not meeting this requirement is severe- 25% instead of the usual early distribution penalty of 10%. But this is not simply an increase in the penalty because the usual penalty is erased by a rollover. Within the two year period, you cannot even make a rollover contribution from a SIMPLE to another type of plan, therefore you face both tax on the distribution plus 25%.
This penalty does not apply if the funds are transferred to another SIMPLE IRA, but most people do not have another SIMPLE IRA. After the 2 year waiting period ends, funds can be transferred out to another plan (employer plan, TIRA, Roth IRA etc) without any additional waiting period. It could even be done after each contribution if you wanted to.