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SIMPLE IRA Plan FAQs - Distributions

May I withdraw amounts held in my SIMPLE IRA at any time?

Yes. Your employer can't require you to retain any portion of the contributions in your SIMPLE IRA or otherwise impose any withdrawal restrictions.


What are the tax consequences when I withdraw amounts from my SIMPLE IRA?

Generally, the same tax results apply to distributions from a SIMPLE IRA as to distributions from a regular IRA. However, a special rule applies to a distribution received from a SIMPLE IRA during the 2-year period beginning on the date on which you first participated in your employer’s SIMPLE IRA plan. Under this special rule, if the additional income tax on early distributions applies to a distribution within this 2-year period, then the rate of additional tax under this special rule is increased from 10 percent to 25 percent. If one of the exceptions to application of the early distribution tax under section 72(t) applies (for example, for amounts paid after age 59 1/2, after death, or as part of a series of substantially equal payments), the exception also applies to distributions within the 2-year period and the 25-percent additional tax does not apply.


When does the 2-year period begin?

The 2-year period begins on the first day on which your employer deposits contributions in your SIMPLE IRA.

For additional distribution FAQs see IRA FAQs.


What additional taxes may apply to SIMPLE IRA withdrawals?

Unless you qualify for an exception, you’ll have to pay an additional 10% tax on the amount you withdraw from your SIMPLE IRA. This additional tax increases to 25% if you make the withdrawal within 2 years from when you first participated in the SIMPLE IRA plan.

You don’t have to pay the additional 10% or 25% tax if:

  • You’re age 59½ or older when you withdraw the money
  • Your withdrawal is not more than:
    • Your unreimbursed medical expenses that exceed 10% of your adjusted gross income (7.5% if you or your spouse is age 65 or older), 
    • Your cost for your medical insurance while you’re unemployed,
    • Your qualified higher education expenses, or
    • The amount to buy, build or rebuild a first home (up to $10,000)
  • Your withdrawal is in the form of an annuity
  • Your withdrawal is a qualified reservist distribution
  • You’re disabled
  • You’re the beneficiary of a deceased SIMPLE IRA owner
  • The withdrawal is the result of an IRS levy

Can I transfer money from my SIMPLE IRA to another retirement account?

You may be able to transfer money in a tax-free rollover from your SIMPLE IRA to:

  • another IRA (except a Roth IRA), or
  • an employer-sponsored retirement plan (such as a 401(k), 403(b), or governmental 457(b) plan).

However, during the 2-year period beginning when you first participated in your employer's SIMPLE IRA plan, you can only transfer money to another SIMPLE IRA. Otherwise, you’re considered to have withdrawn the amount and you must:

  • include the amount in your gross income, and
  • pay an additional 25% tax on this amount (unless you qualify for an exception (see above)).

After the 2-year period, you can also roll over SIMPLE IRA money into a Roth IRA, but you must include it in your income.

See the rollover chart for a summary of your account transfer options.

 

 

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Page Last Reviewed or Updated: 06-Mar-2015