Simple IRA
Client opened a Simple IRA plan 10 years ago. Client transferred Simple IRA to new custodian 1 year ago.
If we establish Solo 401(k) plan, can client roll all of his money from Simple IRA to Solo 401(k) plan without incurring the 25% penalty? I want to make sure the move from 1 custodian to another would not result in a penalty…
We will be closing the Simple IRA Plan.
Permalink Submitted by Alan - IRA critic on Thu, 2023-06-08 22:44
Client has met the 2 year requirement, but the current SIMPLE custodian may or may not recognize the prior years. If not, and the custodian enters Code S on the 1099R, the client will have to override the penalty by filing Form 5329 and using Code 12 to explain the exception. Client will also need to include an explanatory statement regarding the rollover to the 401k plan since a S coded distribution is not eligible for rollover. Client should attempt to have the custodian recognize the prior SIMPLE IRA participation years. In addition, if any SIMPLE IRA contribution have been made for 2023, the 401k cannot receive a contribution until Jan, 2024.
Permalink Submitted by Michael S on Fri, 2023-06-09 11:11
Okay – so to avoid this, can I leave the Simple IRA open? Client made contributions to Simple IRA for 2022 in the calendar year 2023. No elective or matching deferrals went into SIMPLE IRA that count towards 2023. I think it may be best to leve SIMPLE IRA open for 2 years, then roll into 401(k). We will make contributions to Solo 401(k) for 2024.
Permalink Submitted by Alan - IRA critic on Fri, 2023-06-09 15:16
Permalink Submitted by William Tuttle on Sat, 2023-06-10 00:25
SECURE Act 2.0 enacted two changes. One certainly relevant and one questionable.