Rolling SIMPLE IRA Assets into a New 401(k) Plan

A 401(k) investment account.
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Over the course of their career, most people will change jobs and employers several times. For those who participated in their employer's sponsored retirement plans like a 401(k) or SIMPLE IRA, what to do with those assets once they leave that employer is becoming an ever-more important question. When it comes to traditional 401(k) assets that are still with a former employer's plan, employees have several options from leaving the assets in the plan to rolling them over to a rollover IRA or new employer's qualified retirement plan.

But when it comes to SIMPLE IRA assets, the rules are slightly different.

SIMPLE IRA Rollovers

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a cross between a regular IRA and a 401(k). Like other IRAs, the contributions you make to the plan are always yours and like other employer-sponsored plans like a 401(k), employers can make contributions to a SIMPLE IRA on your behalf. These types of plans are a great option for small business with less than one hundred employees.

So if you have a SIMPLE IRA at work, but leave to take another job where a 401(k) plan is available, you have a few options for those assets in your former employer's plan. The same goes for when your current employer replaces their SIMPLE IRA with a new 401(k) plan. You also have options for the money in your former employer's SIMPLE IRA if you leave your job entirely and are interested in taking your SIMPLE money and putting it into an IRA. Regardless of the situation, you'd like to know if you can roll over your SIMPLE IRA into a new qualified plan.The simple answer is yes, but here are the details.

2-Year Rule for SIMPLE IRA Rollovers to 401(k) Plans and IRAs

If you participated in the SIMPLE IRA for at least two years, you may roll over the plan assets into another qualified plan, such as a 401(k) or IRA. Rolling over your SIMPLE IRA assets to a rollover IRA, is not an extremely complicated process, but you will want to make sure that you are completing the rollover within the terms of your SIMPLE IRA plan and IRS rules to ensure that the rollover qualifies as a penalty and tax-free trustee-to-trustee transfer.

Similar rules apply for SIMPLE IRA rollovers to a qualified 401(k) plan. If you were to take another job where a 401(k) plan is offered, you have the option to rollover your SIMPLE IRA assets to your new employer's plan penalty and tax-free if you have been contributing to the SIMPLE IRA for at least two years. Otherwise, such a rollover might trigger a steep penalty. Similarly, if your employer switches from a SIMPLE IRA to a 401(k), you can roll your SIMPLE IRA assets into the new 401(k) plan provided you meet the two-year rule.

2-Year Rule for SIMPLE IRA Rollovers to Another SIMPLE IRA

If it has not been two years since your first contribution to the SIMPLE IRA, you may not roll it over to any other plan other than another SIMPLE IRA without triggering substantial penalties of at least 25% of the entire distribution. That said, you are able to transfer any amount from that SIMPLE IRA to another SIMPLE IRA in a tax-free trustee-to-trustee transfer at any time regardless of the length of time you've been participating.