Can I Rollover a SIMPLE Plan to a 401(k)?
A Savings Incentive Match Plan for Employees (SIMPLE) IRA is an employer-sponsored retirement plan that functions like traditional IRAs. However, the SIMPLE IRA is an employee plan that mandates employer matching. These plans are cheaper for employers to maintain when compared to 401k plans. However, if you change jobs, you may want to move your SIMPLE IRA to a 401k plan. Being able to do so depends on your new employer.
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Process
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Your new employer must have a 401k plan that accepts rollovers from IRAs. The rollover process is straightforward. A transfer request form is obtained from your new employer, filled out, and sent back to your new employer. The new employer then requests that the existing SIMPLE IRA funds be sent directly to the new 401k plan. You must make sure that you specify the SIMPLE IRA account number and the dollar amount you wish to transfer into the 401k plan.
Significance
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By rolling over a SIMPLE IRA to a 401k plan, you are performing a tax-free transfer. There is no penalty and no income tax due on this transfer. Your employer must have the capability to accept transfers into its 401k plan, however, or you will have to keep your SIMPLE IRA separate from your 401k.
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Benefit
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Transferring your SIMPLE plan into a 401k allows you to take advantage of the benefits of your new employer's 401k plan immediately. If your employer offers investments not available with your SIMPLE plan, you may benefit from the new investments. Additionally, you can consolidate your retirement funds into one account.
Limitations
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If your employer does not allow transfers into its 401k, you must keep your SIMPLE IRA separate from the 401k. You may roll the SIMPLE plan into another IRA, however. If the investments in your new IRA are comparable to the investments available in the new 401k plan and conditions and restrictions of the new IRA and 401k plan are similar, there is no significant disadvantage in rolling the SIMPLE plan into an IRA rather than the new 401k plan.
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