SIMPLE IRA – 25% early withdrawal penalty
Good Morning
I am having difficulty getting an answer to the following question:
Does a SIMPLE IRA participant have a single (i.e. one) two year period (commencing with his/her first contribution; endding two years later) for his/her life? Or
Does a new 2-year clock start for each SIMPLE IRA plan through which the employee participates?
My thought is one single clock applies; much like the 5-year clock that applies to Roth IRA contributions.
Any guidance is much appreciated.
Thank you.
Permalink Submitted by Alan Spross on Wed, 2012-05-30 18:45
No, the two year waiting period applies PER EMPLOYER. Therefore, an older SIMPLE IRA waiting period that has been met does not mean that SIMPLE IRAs for the current employer have also met the waiting period. The following is copied from 5304-SIMPLE, and if the limit were not employer based the penalty wording would only refer to SIMPLE IRAs with no employer reference:
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If an individual withdraws an amount from a SIMPLE IRA during the 2-year period beginning when the individual first participated in any SIMPLE IRA plan of the Employer and the amount is subject to the additional tax on early distributions under section 72(t), this additional tax is increased from 10% to 25%.
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I do think that the Publications might state this more clearly than they do.