SIMPLE IRA Rollovers
NerdWallet’s SIMPLE IRA ratings take into account account fees and minimums, investment options, mobile app capabilities, customer support capabilities and more – something most qualified plans don’t provide for employees.
Monitoring your financial institution/trustee is vital, as laws affecting retirement plans may shift at any moment and require your participants to transfer assets as soon as necessary.
401(k) Plans
If your former employer provides a 401(k) plan that permits rollovers, you have 60 days from when you received your distribution to transfer it into an eligible retirement account or else it becomes taxable income.
Direct rollover is the most efficient method for moving funds between accounts, as this avoids mandatory 20% withholding taxes as well as incurring an early withdrawal penalty if you’re under age 59 1/2.
Roll your 401(k) plan into an individual retirement account (IRA), giving you more investment options such as exchange-traded funds, mutual funds and individual stocks. Working with your financial professional, an IRA may also offer lower fees than its 401(k) counterpart – especially since administration costs often apply when running the account.
SEP Plans
As with 401(k) plans, SEP plans provide employees with tax advantages and an easy way to save for retirement. Employers may make contributions equaling up to the plan’s contribution limits each year.
An important distinction between SEPs and 401(k)s lies in their lack of vesting schedules that gradually transition employer contributions over time, and SEPs’ lower startup and operating costs than those associated with traditional plans.
SEPs are administered by financial institutions or trusts, which are responsible for depositing funds, managing investments and producing annual statements. Employers may opt to select either one custodian or let employees select their own. When choosing an SEP custodian or manager yourself, consult NerdWallet’s reviews of online brokers and robo-advisors regarding account fees, minimums and investment options before selecting one; when switching plans after participation for two years is typically permitted without penalty charges being assessed against withdrawals made under an SEP plan.
SIMPLE Plans
Withdrawal rules for SIMPLE IRAs mirror those for traditional IRAs: early withdrawal incurs an early withdrawal tax penalty if it happens prior to age 59 1/2 or two years has elapsed, respectively.
SIMPLE plans allow employees to roll over assets from other retirement accounts into SIMPLE plans, according to IRS Issue Snapshot. Furthermore, the Protecting Americans from Tax Hikes Act of 2015 amended Code Section 408(p) in order to broaden options for rolling assets over into SIMPLE IRA plans.
While this feature can be helpful, being limited to rolling over from an IRA or employer-sponsored retirement account means you may miss out on diversifying assets and earning higher interest rates with a Guideline account. Therefore, before making a decision about rolling SIMPLE plan assets into a Guideline account you should consult your advisor and consider any fees charged by trustee providers – excessively priced providers might warrant switching providers altogether.
Roth Plans
The Savings Incentive Match Plan for Employees (SIMPLE) Individual Retirement Account allows companies to offer non-elective contributions of 2% with matching contributions up to 3% matching contribution from them, with specific eligibility requirements being fulfilled. Only companies with 100 or fewer employees and meeting these conditions can opt for such an IRA plan.
If a participant leaves their SIMPLE IRA, their assets can be moved either into another SIMPLE IRA or a Roth IRA; however, two years must pass between when they first contributed to their SIMPLE IRA and when they began contributing to it with their new employer before moving them over into their 401(k).
Companies providing SIMPLE IRAs must regularly inspect the trustee/custodian to ensure they are fulfilling all obligations, while keeping fees reasonable in relation to services offered; otherwise it may be time for a change. Furthermore, companies must inform all participants about expanding rollover options both IRA-to-IRA rollovers as well as SIMPLE-IRA rollovers.
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