SIMPLE IRA’S Can Now Receive Rollovers

Submitted by Steve Kochis on Tue, 2015-12-29 15:14

On Friday, December 18, 2015, President Obama signed into law the (PATH) Act of 2015.Taxpayers are now permitted to roll assets from traditional and SEP-IRAs, as well as from employer-sponsored retirement plans such as a 401(k), into a SIMPLE IRA, provided that the plan has existed for at least two years. Rollovers from Roth IRAs will not be permitted. This provision will be effective for rollover contributions made after enactment.

Has anyone received any guidance regarding whether transfers of Traditional and SEP IRAs into SIMPLE IRAs will be permitted as long as the SIMPLE account has been opened for 2 years?



Submitted by Alan - IRA critic on Tue, 2015-12-29 17:19

It usually takes some time for IRA custodians to change their systems and procedures to reflect legislation passed with little lead time. Custodians will therefore adopt this option at varying times. Perhaps the legislation was driven by problems caused by disallowed rollovers into a SIMPLE IRA in the past, but since many SIMPLE IRA plans contain high expense investment options, the usual pattern is to roll money OUT of the SIMPLE IRA after the 2 year waiting period. There should not be much demand to roll funds into a SIMPLE IRA other than by those who want to consolidate there IRA accounts into their on going SIMPLE IRA accounts.

Submitted by ShipsnGiggles on Mon, 2016-01-04 15:42

Does the rule allow for SEP and/or Traditional IRAs to be rolled int a SIMPLE?Assuming this is permitted – would after-tax (non deductible assets) also be allowed to rolled? Thanks!

Submitted by Alan - IRA critic on Mon, 2016-01-04 19:01

The new provision allows rollovers from an employer sponsored retirement plan to SIMPLE IRAs. Therefore a 401k balance or a SEP IRA balance could be rolled into the SIMPLE IRA, but not a traditional IRA balance. Since after tax amounts could be included in a 401k plan and since basis in IRA accounts are spread over all non Roth IRA accounts, additional basis could be added to these IRAs through the SIMPLE IRA rollovers.

Submitted by David Mertz on Mon, 2016-01-04 21:23

  • I don’t see where a rollover to a SIMPLE IRA after 2-years is precluded from being made from a distribution from a regular traditional IRA.  Division Q Sec. 306 of the Consolidated Appropriations Act, 2016 reads:
  • Section 408(p)(1)(B) is amended by inserting “except in the case of a rollover contribution described in subsection (d)(3)(G) or a rollover contribution otherwise described in subsection (d)(3) or in section 402(c), 403(a)(4), 403(b)(8), or 457(e)(16), which is made after the 2-year period described in section 72(t)(6),” before “with respect to which the only contributions allowed”.
  • “a rollover contribution otherwise described in subsection (d)(3)” refers to traditional IRA rollovers in general.

Submitted by ShipsnGiggles on Mon, 2016-01-04 22:02

an investor could rollover a T-IRA into a SEP and subquently transfer the comingled assets (now all in a SEP) to simple.  Make sense?Thanks. 

Submitted by Alan - IRA critic on Tue, 2016-01-05 01:02

Yes, given the other portability options, there is little reason to restrict SIMPLE IRA rollovers to distributions from employer plans. DMx appears to be correct in interpreting the PATH Act wording with respect to Sec 408(d)(3), but all the summaries of the Act including those of Congressional Ways and Means, CCH and Groom Law Group all state that the rollovers must come from employer sponsored plans. Perhaps there was a last minute change to broaden these rollovers, or perhaps all these sources are copying from each other??  I see no reason for SIMPLE IRAs to accept rollovers from all sources other than TIRAs given that TIRA money can end up in most of these other plans anyway.

Submitted by Alan - IRA critic on Thu, 2016-01-07 02:33

The new Pub 575 clarifies that TIRA balances can be rolled into a SIMPLE IRA after 2 years:https://www.irs.gov/pub/irs-pdf/p575.pdf 

Submitted by William Tuttle on Fri, 2016-01-08 01:15

I guess I am left to ask. Why would somebody possibly want to rollover an IRA to a SIMPLE IRA.Everybody, I have even known with SIMPLE IRAs are biting at the bit to get the 2-year period behind them so they can roller to an IRA.Is there some benefit to SIMPLE IRAs I am not aware of?  

Submitted by Alan - IRA critic on Fri, 2016-01-08 03:13

spiritrider, I don’t know of any meaningful benefit, and don’t expect this added portability will offset much of the post 2 year outflows. My guess is that the custodians might have been griping about the outflows and Congress might have seen some benefit to simplifying portability rules and reducing the portability chart exceptions. There has always been a rule requiring a special recharacterization to a TIRA when a TIRA was mistakenly rolled or transferred into a SIMPLE IRA. but no 1099R instructions provided on how to report it. That problem also has now been partially eliminated.

Submitted by Richard Rea on Tue, 2016-01-19 00:19

“…will offset much of the post 2 year outflows….”………..Have another thread started on “Simple IRAs” as my daughter just joined a small company that has one of these.  She previously work for a national company that offered her a 401k………..The tone and trying to read between the lines, it looks like Simple IRA are even worse than 401ks when it comes to “fees”, etc…………So whatis this “2 year rule”  ?  

Submitted by Alan - IRA critic on Tue, 2016-01-19 00:23

Other than transfers to other SIMPLE IRA accounts, the employee cannot take a distribution until 2 years passes from the date of the first SIMPLE contribution. Generally, SIMPLE IRA fees are considerably higher than 401k fees, and that is the reason many participants cannot wait for the 2 years to pass so they can roll their SIMPLE balance out of the plan.

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