SIMPLE Plans and the 2 year Rule
I first participated in my company’s SIMPLE Plan in 2007.
I took a complete (100%) distribution from this SIMPLE plan in 2010.
I started contributing to the same SIMPLE plan again in January 2012.
I am considering taking another distribution from the SIMPLE Plan.
Will the date for the 2 year rule be the date I originally participated in the plan in 2007 or will the clock for the 2 year rule start from the date I re-entered the plan in Jan 2012?
Permalink Submitted by Robert Wright on Thu, 2013-01-24 15:29
One additional note to my situation: the SIMPLE account from 2007 had a different account number from the 2nd SIMPLE account I started in 2012. In other words, the contributions I have been making since 2012 have been going into a different account than the contributions I made in 2007. The account used for the contributions from 2007 was closed when I took the 100% distribution in 2010. My concern is that the SIMPLE custodian will use the date the 2nd account was opened in 2012 when looking at the 2 year clock to generate their 1099 rather than the date the first account was opened in 2007.
Permalink Submitted by Alan - IRA critic on Thu, 2013-01-24 17:14
You should call the current custodian and ask them if their records reflect your prior contributions, and if not what documentation they want to update their records that you have met the 2 year waiting period. A letter from the employer might suffice. It’s better to have them change their records now than deal with the IRS in the event they code your distribution as prior to the 2 year waiting period. The consequences are severe, ie you could not roll over the distribution (not sure if you plan to) and the penalty would be 25% instead of 10%.
Permalink Submitted by Robert Wright on Thu, 2013-01-24 21:20
So, am I correct that the 2 year clock for my 2012 contributions started with my original participation in the plan in 2007?
Permalink Submitted by Alan - IRA critic on Thu, 2013-01-24 22:30
Yes, as long as the employer is the same.
Permalink Submitted by Robert Wright on Fri, 2013-01-25 17:44
Alan, thanks as always.