How to Discontinue Simple IRA in Writing

Be aware of all rules and regulations when tapping your Simple IRA.

If you worked for someone else, you probably had a 401k or similar savings plan available to you, but if you struck out on your own, that employer-sponsored option disappeared. As a business owner, it is up to you to save and invest for the future, and a Simple IRA is one way to accomplish that goal. But while the Simple IRA can be an informed choice, you need to use caution when discontinuing the plan. Making the right moves will help you avoid taxes and other penalties.

Things You'll Need

• Simple IRA statement Account transfer form Bank account

Instructions

1. Find your most recent Simple IRA statement. Keep in mind that the amount in your account might be more or less, depending on how the stock market has done in the interim. You can log on to your account if you have online access and get up-to-the-minute pricing.

2. Decide whether you want to move the Simple IRA to a new custodian or discontinue it altogether. If your Simple IRA is performing poorly, changing the mixture of funds or moving the account to a new custodian might boost performance. Remember that the rules governing Simple IRAs forbid the money from being transferred to another type of retirement plan within the first two years. The funds can, however, be rolled into another Simple IRA.

3. Assess your tax situation carefully before closing or discontinuing your Simple IRA. If you are younger than 59 1/2, you will have to pay a penalty, as well as ordinary income taxes, on the money you withdraw.

4. Contact the custodian of your Simple IRA and inform him that you wish to discontinue your account. Sending a letter works best, and keep a copy of the letter for your records.

5. Complete an account-closure form or an account-transfer form, depending on whether you are closing the account completely or just moving the funds to another custodian. Be sure to include all the necessary information, including the account number, your name or the name of the business and your full address.

6. Select the method of how you want to receive the funds from the Simple IRA, such as bank transfer or check. If you wish to use a bank transfer, provide your full account number and routing number.

7. Retain copies of all forms and letters with your tax information. You will need this documentation when you file your taxes.

References

• Investopedia: Simple IRAs: Distributions