How Long Before a Simple IRA Can Be Withdrawn?

SIMPLE stands for savings incentive match plan for employees, which is a special type of individual retirement account (IRA) that certain employers can offer to their employees. In general, SIMPLE IRAs follow the same withdrawal rules as traditional IRAs.

Misconceptions

The Internal Revenue Service does not prevent people from removing money from their SIMPLE IRA plan at any time. In fact, the IRS prohibits employers from restricting employees from taking money out of the plan. However, early withdrawals may be subject to an early withdrawal penalty unless an exception applies.

Time Frame

Qualified withdrawals from a SIMPLE IRA occur as long as the account holder is at least 59 1/2 years old at the time of the distribution. If the account holder is younger than 59 1/2, the IRS considers the withdrawal to be nonqualified.

Early Withdrawal Penalties

Any withdrawal taken before 59 1/2 incurs a 10 percent penalty on the taxable portion of the withdrawal. If the withdrawal is taken within two years of opening the account, the penalty increases to 25 percent.

References

• Internal Revenue Service: Publication 590 (SIMPLE IRAs)
• Internal Revenue Service: Retirement Plans FAQs regarding SIMPLE IRA Plans