Issue Snapshot - Expansion of Rollover Options Includes Savings Incentive Match Plan for Employees (SIMPLE) IRA

 

This Snapshot describes the change made by the Protecting Americans from Tax Hikes Act of 2015 to IRC Section 408(p) to allow SIMPLE IRAs to accept contributions from other plans under certain circumstances.

IRC Sections and Treas. Regulation:

Other Resources:

Analysis:

Section 306 of the Protecting Americans from Tax Hikes Act (which is Division Q of the Consolidated Appropriations Act, 2016; PL 114-113) amended IRC Section 408(p)(1)(B) to expand the types of plans from which SIMPLE IRAs can accept rollovers. The law was enacted on December 18, 2015, and Section 306 applies to contributions made after that date.

Previously, a SIMPLE IRA could only accept rollover contributions from another SIMPLE IRA. The new law expands portability of retirement assets by permitting taxpayers to roll over assets from traditional and SEP IRAs, as well as from employer- sponsored retirement plans, such as a 401(k), 403(b), or 457(b) plan, into a SIMPLE IRA . However, the following restrictions apply:

  • The provision does not allow SIMPLE IRAs to accept rollovers from Roth IRAs or designated Roth accounts;
     
  • The change applies only to rollovers made after the two-year period beginning on the date the participant first participated in their employer’s SIMPLE IRA plan;
     
  • The new law applies to rollovers from other plans to SIMPLE IRAs that are made after December 18, 2015, the date of enactment; and
     
  • The one-per-year limitation that applies to IRA-to-IRA rollovers applies to rollovers from a traditional, SIMPLE, or SEP IRA into a SIMPLE IRA.

Section 306 did not change the limitations for payments made from a SIMPLE IRA during the two-year period following initial participation. Under both prior and current law, an amount in a SIMPLE IRA can be transferred tax free-only to another SIMPLE IRA during the two-year period. If, during this two-year period, an amount is transferred from a SIMPLE IRA  to an IRA that is not a SIMPLE IRA, then the payment is neither a tax-free trustee-to- trustee transfer nor a rollover contribution. The payment is treated as a distribution from the SIMPLE IRA and must be included in income. The 25 percent additional income tax for distributions from a SIMPLE IRA within the two-year period applies, unless excepted under IRC 72(t).

Issue Indicators or Audit Tips:

  • Check the SIMPLE IRA for rollovers from other plans, the date of the rollover, and the age of the SIMPLE IRA account.
  • Rollovers from Roth IRAs are not allowed.
  • The rollover from another type of plan to a SIMPLE IRA must be made after December 18, 2015, the date of enactment.