Terminating 401(k); Starting SIMPLE

[MjInvestments]

I am helping a Non-Profit Terminate their 401(k) and start a SIMPLE IRA.  They only have two employees, admin costs of a 401(k) didn't make much sense.

Is there any way around the 2-year rule for rolling money into the SIMPLE?  I guess Ii don't really understand why people are prohibited from rolling money into a SIMPLE IRA for two years.

Are there any penalties for rolling money in before the plan has existed for two years?  Would it simply be considered a taxable distribution?

 

Thanks!

 

[ETA Consulting LLC]

If the SIMPLE IRA is withdrawal restricted in the first two years, then the money being rolled into it will become withdrawal restricted as well.  So, it wouldn't make much sense to roll money into the SIMPLE IRA until it comes out of withdrawal restriction.

Good Luck!

[Appleby]

9 hours ago, ETA Consulting LLC said:

If the SIMPLE IRA is withdrawal restricted in the first two years, then the money being rolled into it will become withdrawal restricted as well.  So, it wouldn't make much sense to roll money into the SIMPLE IRA until it comes out of withdrawal restriction.

Good Luck!

Hi ETA,

The rollover would be ineligible- resulting in an excess contribution to the SIMPLE IRA. 

Participants could rollover their 401(k) balances to traditional IRAs instead.

[ETA Consulting LLC]

37 minutes ago, Appleby said:

Hi ETA,

The rollover would be ineligible- resulting in an excess contribution to the SIMPLE IRA. 

Participants could rollover their 401(k) balances to traditional IRAs instead.

I was merely stating why the rule is in place. The OP suggested confusion as to why a rollover into a SIMPLE IRA would be disallowed within the first two years of the SIMPLE IRA.  

Good Luck!

[Larry Starr]

On 12/19/2018 at 11:58 AM, MJBais1489 said:

I am helping a Non-Profit Terminate their 401(k) and start a SIMPLE IRA.  They only have two employees, admin costs of a 401(k) didn't make much sense.

Is there any way around the 2-year rule for rolling money into the SIMPLE?  I guess Ii don't really understand why people are prohibited from rolling money into a SIMPLE IRA for two years.

Are there any penalties for rolling money in before the plan has existed for two years?  Would it simply be considered a taxable distribution?

 

Thanks!

 

Here is a very helpful chart from IRS that makes the question of "what can I rollover from where" a very simple glance.

https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

 

 

[Roycal]

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Posted 20 hours ago

  On 12/19/2018 at 11:58 AM, MJBais1489 said:

I am helping a Non-Profit Terminate their 401(k) and start a SIMPLE IRA.  They only have two employees, admin costs of a 401(k) didn't make much sense.

Is there any way around the 2-year rule for rolling money into the SIMPLE?  I guess Ii don't really understand why people are prohibited from rolling money into a SIMPLE IRA for two years.

Are there any penalties for rolling money in before the plan has existed for two years?  Would it simply be considered a taxable distribution?

 

Thanks!

 

"Here is a very helpful chart from IRS that makes the question of "what can I rollover from where" a very simple glance."

https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

I absolutely love this chart.  It amply illustrates the absurdity of our tax-favored retirement plans system.

[thepensionmaven]

And what makes you say  "it amply illustrates the absurdity of our tax-favored retirement plans system".

As another pension professional mentioned a few years ago..."SIMPLE plans are for simple minds."

 

[Appleby]

On 12/19/2018 at 10:51 PM, ETA Consulting LLC said:

I was merely stating why the rule is in place. The OP suggested confusion as to why a rollover into a SIMPLE IRA would be disallowed within the first two years of the SIMPLE IRA.  

Good Luck!

In understand. We are all just  trying to help.  I merely wanted to correct where you said the following

Quote

If the SIMPLE IRA is withdrawal restricted in the first two years, then the money being rolled into it will become withdrawal restricted as well. 

Because, it's not that " the money being rolled into it will become withdrawal restricted as well". The money cannot be rolled over at all, during the first two years. If it is rolled over, it becomes an excess contribution ( ineligible rollover) and must be corrected by removing the amount, along with any applicable earnings.

[ETA Consulting LLC]

8 hours ago, Appleby said:

I merely wanted to correct where you said the following

 

Again,  it was already established in the OP that it cannot be done.  The issue expressed in the OP was trying to understand why individuals would be prohibited from rolling into a SIMPLE IRA within the first two years.  This was the issue I attempted to shed light on.  If that warrants a 'correction', then so be it. 

Good Luck!