SIMPLE IRA Rollover: Every IRA Owners Should Know


The SIMPLE IRA allows you to save up to $19,500 per annum ($24,500 if aged 50+) through tax-free contributions. You might be able to save even more by contributing to an IRA. And you won't owe any taxes on these contributions. With a SIMPLE IRA, you can contribute up to $19,500 annually ($24,500 if age 50 or older), and your employer can match part of those funds. If you work for a small business with no more than 100 employees, your employer can make matching contributions too. You don't even have to pay tax on your contributions.


Simple IRA plans are designed to help employees save for retirement while offering employers a simple solution to match employee contributions. In addition, Simple IRAs provide employees with tax benefits because they do not require participants to pay taxes during the period they defer.

Employers can establish a Simple IRA plan by making a one-time employer contribution equal to 3% of each participant’s salary. This amount covers both the employee’s contributions and the employer’s matching contribution. Once established, the plan continues to grow tax deferred until the individual reaches age 59½. At that point, the account becomes fully taxable, however, it can continue growing tax free until the individual retires.

Employees can contribute to a Simple IRA either pretax or posttax. If the employee chooses to make his/her contributions pretax, he/she receives a deduction on his/her federal income tax return. Conversely, if the employee makes his/her contributions posttax, there is no deduction on his/her personal income tax return.

The IRS allows certain types of employers to establish a simplified 401(k) plan. These plans are called Simplified Employee Pension Arrangements (SEPAs). SEPA plans must comply with the same rules and regulations as traditional defined benefit pension plans. Additionally, SEPAs cannot exceed $100,000 per year. Employer contributions to a SEPA are limited to 50% of the participant’s compensation.

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For example, suppose you work for a corporation with a defined benefit pension plan. Your employer contributes 5% of your base salary into the plan. You decide to Exceptions participate in a Transfers SEPA plan, which matches your employer’s contribution of Transfers 5%. As long as your total annual compensation does not exceed $100,000, your employer can contribute up to 50% of your compensation into a SEPA plan.

How To Rollover SIMPLE IRA

A simple rollover is a way to transfer money out of an old retirement account (such as a traditional IRA) into a new retirement account (like a Roth IRA). You may have heard about these accounts before, but they’re not something you should worry about until you retire. If you do decide to take advantage of them now, though, you need to know how they work.

The first thing you want to think about is whether you’ll still be working at age 59 ½. If you plan to continue working past that point, then you probably don’t need to use a simple IRA rollover right away. But if you’re planning to stop working earlier than that, then you might consider using a simple IRA rollover to avoid taxes on any withdrawals you make after turning 60.

If you’re looking to save some tax dollars, a simple IRA rollover could be a good option. When you withdraw funds from a traditional IRA, you pay ordinary income tax rates on those earnings. However, if you move those same funds into a Roth IRA instead, you won’t owe any federal income tax on those earnings. That means you’ll end up paying less in taxes over time.

Account Pricing

There is no fee to open or maintain an account. If you want to trade options, find out how much it costs to do so here.

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If you're looking to buy shares, learn what trading commission rates we charge Additional Taxes

If you are over age 59 ½, you will not owe additional tax on your withdrawal from your SIMPLE IRA account. This rule applies to both traditional and Roth IRAs. However, you must file Form 8606 with the IRS to report these withdrawals. For more information about retirement plans, call our office at 800-272-7447.

Transfer from SIMPLE IRAs

SIMPLE IRAs offer tax advantages over traditional IRAs because contributions do not count toward income limits. However, there are restrictions on how much you can contribute each year. If you want to move funds into a SIMPLE IRA, it must be done during the 2-year window. Once the 2-year window closes, you cannot transfer money out of a SIMPLE IRA unless you are moving money into a different SIMPLE IRA. This restriction applies to transfers from one SIMPLE IRA to another. There are no such limitations if you are transferring money from a SIMPLE to a Traditional IRA.

Withdrawals from a SIMPLE IRA are treated differently depending on whether you are withdrawing money to buy a home or make a contribution to a Traditional IRA. In either case, withdrawals are taxed as ordinary income, regardless of whether you paid taxes on the amount withdrawn.

Previously, a SIMPLE IRA could not accept transfers from other IRAS. Now, thanks to a rule change announced by the Internal Revenue Service on Jan. 29, 2018, SIMPLE IRAs can now do exactly that. This allows you to roll over funds from one retirement plan into another without worrying about taxes. Here’s what you need to know.

IRS Ruling #1875-09

The IRS ruled that SIMPLE IRAs are treated like regular IRAs for tax purposes. As such, you can transfer money from a traditional IRA to a SIMPLE IRA or vice versa. In addition, you can still use the money in either account to pay qualified medical expenses. If you want to make sure that you don’t owe additional taxes on the transferred amount, consult with a tax professional.

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Rollover Rules

You cannot roll over funds from a traditional IRA directly into a SIMPLE IRA. You must convert the entire balance into a Roth IRA. However, you can take out the money from a Roth IRA and deposit it into a SIMPLE IRA, subject to certain restrictions. For example, you must wait three years after converting the money to withdraw the funds. Also, you cannot contribute to a SIMPLE IRA during those three years.

If you already have a SIMPLE IRA, you can continue contributing to it. However, you cannot add any additional contributions to it.

Frequently Asked Questions

Is There Any Risk Involved in Using a Simple IRA Rollover Right Away?

There isn’t much risk involved in using a simple IRA roll-over right away. As long as you follow the rules, you shouldn’t face any penalties or fees. And if you choose to use a simple IRA to invest in stocks, bonds, mutual funds, ETFs, or anything else, you won’ t incur any additional costs.

Can I Still Make Contributions to My Traditional IRA After Turning 50?

Yes! In fact, you can contribute to your traditional IRA even if you’re under 50 years old. You just need to file IRS Form 8606, “Nonemployee Income From Self Employment.” Once you submit this form, you’ll get a 1099-MISC showing the amount you earned from self employment. Then, you can add that figure to your regular contributions to your traditional IRA.

Will I Have to Pay Taxes on Money I Move Out of my Traditional IRA Into a Roth IRA?

No. Moving money between IRAs doesn’t trigger any taxes. So, you won’ ll have to pay taxes on any money you move out of your traditional IRA into a Roth IRA.

Are There Other Ways to Save Tax Dollars?

Of course! One alternative to using a simple IRA rollovers would be to convert your traditional IRA into a 401(k), 403(b), or 457(b) plan. These plans offer many of the same advantages as a traditional IRA, including tax savings, employer matching, and investment options. Plus, you can often open a new account with the same company that manages your current plan.