How to Roll a Simple IRA Into an IRA
A Simple IRA stands for Savings Incentive Match Plan for Employees, which is a plan that can be offered by small employers--those with fewer than 100 employees--to help workers save for retirement. The investments for a Simple IRA are limited to the options provided by the employer. A traditional or Roth IRA allows you to have a wider range of investment options and you may also benefit from lower costs. To roll the money into an IRA, you need to determine whether you want to put it in a traditional IRA or a Roth IRA.
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Instructions
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Decide whether it is more financially advantageous for you to roll the money into a traditional IRA or a Roth IRA. Rolling the money into a traditional IRA is considered a transfer and does not have to be reported to the IRS because Simple IRAs and traditional IRAs are subject to the same tax laws, namely that you are able to let the money grow tax-sheltered in the account and the distributions are taxed at retirement. If you expect to be in a higher tax bracket at retirement than you are in during they year of your rollover, you should consider rolling the money into an IRA. In this case, you will have to include the money transferred as taxable income the year of the rollover, but you will be able to withdraw the money tax-free at retirement.
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Determine how much you want to roll into the IRA. You can choose to roll just a portion in, which may be advantageous if you are converting to a Roth IRA and a larger rollover would fall into a higher tax bracket, or the entire amount, if you want to consolidate your retirement accounts into just one.
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Set up an IRA or retrieve the account information of your IRA that you want to transfer the funds to from your Simple IRA.
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Contact the financial institution that oversees your Simple IRA to complete the necessary paperwork to initiate the transfer. With a direct transfer, you never have to worry about redepositing the money in the new account. You will need to supply your identifying information, including your Social Security number and the account information of your new account.
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Tips & Warnings
Because Simple IRAs and traditional IRAs have the same tax benefits, the IRS does not require you to report the transfer of funds between the accounts on your taxes.
