SIMPLE to Trad IRA – “direct rollover” or “trustee-to-trustee” transfer?
I know the IRS often uses “rollover” and “transfer” interchangeably, but my understanding is that:
1.) “Rollover” is properly used when moving between an employer plan to another (type of) employer plan (e.g., 401(k) to 403(b)) or between an employer plan and an IRA (e.g., 401(k) to IRA);
2.) “Transfer” is properly used when transferring between the same type of account (e.g., IRA to IRA).
If that is correct, then what is the proper characterization of movement from a SIMPLE IRA to a Traditional IRA? Though they are funded differently, they are both “IRAs”. And the IRS aggregates Trads, SIMPLEs and SEPs all together for purposes of transfer rules.
So if a transfer is made directly between institutions (i.e., no actual or constructive receipt of funds by the account holder), is that movement from SIMPLE to Trad a “direct rollover” or a “trustee-to-trustee transfer”?
Please and thank you!
Permalink Submitted by Alan - IRA critic on Sat, 2021-01-23 00:02
Correct, even when mechanically done by a direct transfer.
Correct, as long as it is done by non reportable direct transfer.
For Simple to TIRA, if done by direct transfer best to refer to it as a transfer, but if done by 60 day rollover refer to as a rollover.
A direct rollover is done mechanically as a direct transfer, but must be reported as a distribution using codes G or H. A qualified plan must be either the distributing or receiving plan. Therefore, a SIMPLE IRA to TIRA would not be a direct rollover, it’s either a direct transfer or a 60 day rollover, but must be reported as a distribution if done to another type of IRA in the first two years.
It is very difficult to simplify these terms because there always seems to be some exception. Perhaps that is why the IRS interchanges the terms so much. Consistency between the types of accounts, IRS reporting requirements, how the funds are moved in terms of the payee, etc do not easily lead to simple definitions.
Permalink Submitted by Robert Vashko on Sat, 2021-01-23 01:53
Thanks, Alan. It likewise does not help that SEPs and SIMPLEs are “plans” themselves (though not the same kind of plan as a 401(k) or 403(b)), which further clouds the issue as to whether movement between a SIMPLE and a Trad is “plan-to-IRA” (rollover).Have a great weekend!