The Not So Simple IRA
June 2015
For small companies that want to create a retirement plan for their employees a SIMPLE IRA can make a lot of sense. After all SIMPLE IRAs are easy to set up, do not require 5500 filing, or ownership testing. The SIMPLE IRA has some distinctions from a traditional 401(k) plan but works in a similar fashion.
However, the SIMPLE IRA can get a bit murky when clients withdraw from their account. Ordinarily a withdrawal from an IRA before the client attains age 59 ½ will trigger a 10% penalty and the funds will be added to their income. With a SIMPLE IRA the early withdrawal penalty could be up to 25% if the withdrawal occurs prior to the client participating in the plan for at least two years.
This feature is unique to SIMPLE IRAs and it isn’t regulated to just withdrawals. There can be no conversion or rollovers to another qualified plan (with the exception of another SIMPLE IRA) within the two year holding period. The holding period starts the day the client makes their first contribution to the SIMPLE IRA.
If you want more information on starting up a SIMPLE IRA or getting an analysis done on your current retirement plan to ensure that you are taking full advantage of the current rules and regulations, please don’t hesitate to contact me.
Michael Anicito, CFP®
Inspire Investment Solutions, LLC - President
Michael is an independent CERTIFIED FINANCIAL PLANNER™ who practices in New York and New Jersey. He works with individuals and business owners alike to help save for retirement and manage their assets. He is currently the President of Inspire Investment Solutions, LLC (www.inspireis.com). For more information or a complimentary consultation you can reach him at 646.606.2111 or at mike@inspireis.com. The scenarios presented are hypothetical and the rates of return used are not indicative of any actual investment, which will fluctuate and may lose value.
