(IRS Notice 98-4). 601.56 If an employee terminates employment, and two years have expired since the employee first participated in the SIMPLE plan, the employee's SIMPLE IRA is treated as a traditional IRA. 601.57 During this two-year period, distributions from the SIMPLE IRA can be rolled over tax-free to another SIMPLE IRA, but not a traditional IRA [IRC Sec. 408(d)(3)(G)]. 601.58 After the two-year period, a SIMPLE IRA is treated as a traditional IRA for rollover purposes. Based on this classification, a SIMPLE IRA can be rolled over to an eligible retirement plan. An eligible retirement plan includes a traditional IRA, an individual retirement annuity, a qualified pension, or stock bonus plan, a governmental Section 457 plan, or a Section 403(b) annuity [IRC Secs. 402(c)(2) and (c)(8)(B)]. Rollovers to eligible retirement plans will generally be tax-free. Rollovers from a SIMPLE IRA to a Roth IRA are also permitted, but will be treated as taxable conversions. See section 607 for an expanded discussion of the rollover rules. 601.59 Caution: A transfer from a SIMPLE IRA to any other type of IRA during the two-year period is not a tax-free rollover. This means the transfer is not only taxable (and possibly subject to the 25% early withdrawal tax discussed at paragraph 601.62), but also is an excess IRA contribution to the extent it, plus other contributions made to the individual's traditional IRAs, exceeds the individual's allowable contribution limit (IRS Notice 98-4). 601.60 A rollover must take place within 60 days after the participant receives the distribution. (See section 607.) 601.61 Client Advice: The practitioner should advise taxpayers who terminate employment to the two-year period that before any rollover to a traditional IRA or other retirement plan, the funds must remain in the SIMPLE IRA until the two-year period is met. 601.62 Early Distribution Penalty Tax As with any IRA, early withdrawals (i.e., distributions before age 591/2) from a SIMPLE IRA generally are subject to the 10% early distributions tax unless a specific exception applies. (See section 605 for a list of
(IRS Notice 98-4). 601.56 If an employee terminates employment, and two years have expired since the employee first participated in the SIMPLE plan, the employee's SIMPLE IRA is treated as a traditional IRA. 601.57 During this two-year period, distributions from the SIMPLE IRA can be rolled over tax-free to another SIMPLE IRA, but not a traditional IRA [IRC Sec. 408(d)(3)(G)]. 601.58 After the two-year period, a SIMPLE IRA is treated as a traditional IRA for rollover purposes. Based on this classification, a SIMPLE IRA can be rolled over to an eligible retirement plan. An eligible retirement plan includes a traditional IRA, an individual retirement annuity, a qualified pension, or stock bonus plan, a governmental Section 457 plan, or a Section 403(b) annuity [IRC Secs. 402(c)(2) and (c)(8)(B)]. Rollovers to eligible retirement plans will generally be tax-free. Rollovers from a SIMPLE IRA to a Roth IRA are also permitted, but will be treated as taxable conversions. See section 607 for an expanded discussion of the rollover rules. 601.59 Caution: A transfer from a SIMPLE IRA to any other type of IRA during the two-year period is not a tax-free rollover. This means the transfer is not only taxable (and possibly subject to the 25% early withdrawal tax discussed at paragraph 601.62), but also is an excess IRA contribution to the extent it, plus other contributions made to the individual's traditional IRAs, exceeds the individual's allowable contribution limit (IRS Notice 98-4). 601.60 A rollover must take place within 60 days after the participant receives the distribution. (See section 607.) 601.61 Client Advice: The practitioner should advise taxpayers who terminate employment to the two-year period that before any rollover to a traditional IRA or other retirement plan, the funds must remain in the SIMPLE IRA until the two-year period is met. 601.62 Early Distribution Penalty Tax As with any IRA, early withdrawals (i.e., distributions before age 591/2) from a SIMPLE IRA generally are subject to the 10% early distributions tax unless a specific exception applies. (See section 605 for a list of
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