If you have a SIMPLE IRA account, you can rollover or transfer those funds into other eligible retirement accounts. Generally, SIMPLE IRAs can be rolled over to employer-sponsored plans, such as a 401(k) or 403(b), or transferred or rolled over to a traditional or Roth IRA, depending on when you made the contributions.
While the portability rules typically follow the same guidelines as other IRAs, there are specific timing requirements you must meet when rolling over funds into certain accounts.
When can I move the assets in my SIMPLE IRA?
You can transfer your assets between different SIMPLE IRA accounts at any time. However, rollovers and transfers to other employer-sponsored plans or traditional or Roth IRAs require a 2-year waiting period. This means you cannot move your SIMPLE IRA assets to these other accounts until it has been at least 2 years since the first deposit for your benefit was made into the SIMPLE IRA.
What happens if I rollover my SIMPLE IRA before the 2-year waiting period?
If you rollover your SIMPLE IRA funds before the 2-year waiting period has passed, the amount you transfer will be treated as a distribution and subject to penalties. However, in addition to the 10% early withdrawal penalty that typically applies to withdrawals from other retirement plans, SIMPLE IRA distributions are subject to an additional 15%. This means you’ll pay 25% on any balance you rollover before the necessary time period has passed.
Additionally, the entire amount will be included in your taxable income and considered current-year contributions to an IRA or an ineligible rollover for an employer-sponsored plan.
While other retirement accounts waive early withdrawal penalties if you meet the requirements for an exception, these are not applicable for SIMPLE IRAs when the funds are removed before the 2-year waiting period.
How is the 2-year waiting period measured?
Your 2-year waiting period starts on the date your employer first deposits money into your SIMPLE IRA account. This timeline does not reset if your employer chooses to move the SIMPLE IRA plan to a different financial organization or if you transfer your asset to a new SIMPLE IRA account.
However, the timing requirement is specific to each SIMPLE IRA plan. For example, if you have a SIMPLE IRA with a prior employer and a new employer, the assets under each plan will have their own 2-year waiting period.
Does the 2-year waiting period apply if I am no longer employed by the sponsoring company?
The 2-year waiting period applies even if you no longer work for the employer who sponsored the SIMPLE IRA.
Is there an exception to the waiting period if the SIMPLE IRA is terminated and replaced with a 401(k) or 403(b)?
The one exception to the 2-year waiting period is when the employer sponsoring the plan terminates the SIMPLE IRA and replaces it with a safe harbor 401(k) or 403(b) plan and the SIMPLE IRA assets are subject to the same distribution limitations as safe harbor contributions under the replacement plan. This means they cannot be distributed before age 59 ½, death, disability, or termination from employment. When this occurs, you can roll over your SIMPLE IRA assets to a 401(k) or 403(b) plan, even if you haven’t yet met the 2-year timeline.
Since many 401(k) or 403(b) plans do not limit rollover contributions appropriately to the safe harbor distribution rules, you will need to be careful to ensure the rollover is eligible for the 2-year waiting period exception. While most plans at Guideline do limit rollover contributions to the events allowed for safe harbor contributions, plans that were at a different retirement provider prior to moving to Guideline may allow rollover contributions to be distributed earlier. You will need to check your plan’s Summary Plan Description to ensure this requirement is met.
How do I initiate a SIMPLE IRA rollover to Guideline?
If you’ve met the 2-year waiting requirement and would like to roll over your SIMPLE IRA into your Guideline account, access our step-by-step instructions for 401(k) and IRA inbound rollovers.