SIMPLE IRA Transfer Rules

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Rollover vs. Transfer

The funds in a SIMPLE IRA belong to the employee and may be withdrawn at any time, though the withdrawal of funds from a SIMPLE IRA may be taxable. The IRS allows for rollovers and transfers from SIMPLE IRAs to postpone taxation. SIMPLE IRA accounts can be rolled over or transferred into other retirement plans, including traditional IRAs and Roth IRAs. There are several types of rollovers. Additionally, rollovers are subject to different rules than transfers.

Direct Rollover

A direct rollover is a rollover directly from a qualified retirement plan, such as a 401(k), into an IRA or another qualified retirement plan. A direct rollover would allow for funds to be rolled from a qualified plan into an IRA, including into a SIMPLE IRA. In a direct rollover the retirement plan administrator issues a check to the new plan -- not to the individual who owns the plan. Direct rollovers are not subject to income tax. A direct rollover cannot be used to roll funds from a SIMPLE IRA.

60 Day Rollover

The IRS allows for 60 day rollovers between retirement plans. You can withdraw from a plan such as a SIMPLE IRA and deposit the withdrawal amount into another plan within 60 days without tax or penalty. You can roll over part or all of the distribution. Any portion of the distribution not rolled into another retirement account within 60 days is taxable. A 60-day rollover allows you to roll over funds from a SIMPLE IRA to another tax deferred retirement plan.

Trustee-to-Trustee Transfers

A trustee-to-trustee transfer is used to transfer funds directly from one retirement plan to another. In a trustee-to-trustee transfer, the custodian of the account sends the rollover funds directly to the new IRA custodian. Trustee-to-trustee transfers are not taxable and allow you to transfer from a SIMPLE IRA to another IRA account.

Restrictions

Only One Rollover per Year

Only one IRA rollover per year is allowed. This restriction applies no matter how many IRAs you have. The limit is once per year for an individual, not per account. This restriction does not apply to trustee-to-trustee transfers or to Roth IRA conversions. The restriction is not based on calendar year, either -- the year begins on the date of the last rollover. For example, if you completed a rollover on October 10 of one year you would not be eligible for another rollover until October 11 of the following year.

Account must be Two-Years-Old

Rollovers are not permitted during the first two years of participation in a SIMPLE IRA. There is one exception to this rule: rollovers from a SIMPLE IRA to another SIMPLE IRA are allowed at any time.

Conversion to a Roth IRA

A SIMPLE IRA may be converted to a Roth IRA. Conversion to a Roth IRA is not allowed during the first two years of participation in a SIMPLE IRA. Conversion of a SIMPLE IRA to a Roth IRA is a taxable event. The amount of the conversion is included in income and subject to tax.

Warning

  • The rules regarding rollovers and transfers are complex. Advice from a financial professional is recommended.

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