Rollover IRA Vs. Simple IRA
There are many different types of investment retirement (IRA) accounts. A rollover IRA and a Savings Incentive Match Plan for Employees (SIMPLE) IRA serve very different purposes.
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Rollover IRA Definition
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A rollover IRA is an individual retirement account that's set up specifically to hold the funds transferred from an employer-sponsored retirement plan like a 401k. Many people opt to rollover or transfer the 401k monies to which their entitled when leaving a job.
Benefits
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The benefit of the rollover IRA is that it keeps the transferred assets separate from any other IRA accounts you may have. This segregation is important. If contributions are made to the monies from an employer-sponsored plan, those assets cannot be transferred to a different employer-sponsored plan at a later date.
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Considerations
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When moving assets from your employer-sponsored plan to a rollover IRA, a twenty percent withholding may occur. In order to avoid this, use a direct or trustee-to-trustee rollover in which one financial institution moves the money directly to your rollover IRA.
Simple IRA Definition
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A SIMPLE IRA is a retirement plan set up by small employers. Companies with fewer than 100 employees earning more than $5,000 in the calendar year may establish SIMPLE IRAs for their employees.
Benefits
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A tax deduction for the employer is one of the primary benefits of the SIMPLE IRA. They also tend to be less costly to administer than 401k plans. Employees can defer income into their SIMPLE IRAs and take a tax deduction. Additionally, they may get a matching funds benefit from the employer.
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