SIMPLE IRA
Good Afternoon …
I have a question about a SIMPLE IRA …. Have a client who currently maintains a SIMPLE IRA account. He is still working (Age 52) and he wants to close the SIMPLE IRA and rollover the funds (60 day rule) to a traditional IRA. May he do that ?
His plan is to then open a SEP IRA and continue to make contributions yearly to the SEP IRA …
Please let me know if that is doable …
Many thanks as always –
Gregg Guiol
Permalink Submitted by Alan - IRA critic on Wed, 2017-08-23 22:18
He cannot do an indirect rollover from the SIMPLE IRA if he rolled over any other IRA distribution in the last 12 months, and he cannot roll or transfer any amount out of the SIMPLE IRA within the first 2 years he first contributed to the SIMPLE IRA. If he does not run afoul of those limitations, then he can end the SIMPLE IRA and adopt a SEP IRA instead, but should only do that effective 1/1/2018 since a SIMPLE IRA is meant to be a calendar year plan with no contributions made to other plans in a single calendar year. For January, he may want to consider a solo K plan instead of a SEP IRA. He may be able to contribute more to a solo K, and a solo K will not interfere with back door Roth contributions if he is doing those. There are also no catch up contributions for a SEP IRA.
Permalink Submitted by Gregg Guiol on Tue, 2017-08-29 20:09
Alan -Thanks for the info …The client has opened the SIMPLE IRA in excess of 5 years ago. He has made contributions each year. Now being the account has aged in excess of 2 years, could he close that account say next (no contribution – he is interested in your solo k suggestion) year and roll the monies from the SIMPLE IRA to a Traditional IRA ?
Permalink Submitted by Alan - IRA critic on Tue, 2017-08-29 23:30
He might as well wait until the last SIMPLE IRA contribution is made, and then transfer the entire balance over to a TIRA or perhaps to the solo K if he opens one that includes provisions to accept rollovers from IRA accounts. Otherwise he will have to do more than one direct transfer or direct rollover. Should probably not do a 60 day rollover and use up the one permitted 60 day rollover for a 12 month period.
Permalink Submitted by Gregg Guiol on Wed, 2017-08-30 13:08
Alan -So he would be allowed to do a direct transfer (trustee to trustee) from the SIMPLE IRA to the TIRA ? And if he decides to exercise the 60 day rollover, does that have any effect on any possible Roth conversions that he might want to do ?Thanks as always …Gregg Guiol
Permalink Submitted by Alan - IRA critic on Wed, 2017-08-30 16:31
Gregg, conversions are exempt from the one rollover limit, so if he used up his one 60 day rollover elsewhere, he could still do as many conversions as he wishes. He could also convert directly from the SIMPLE IRA to a Roth IRA.
Permalink Submitted by Gregg Guiol on Fri, 2017-09-08 14:03
Thanks Alan for the information on the roth conversions (very helpful) … One more thing however. Is the client allowed to directly transfer (trustee to trustee via ACATS) his existing SIMPLE IRA to his existing Traditional IRA ? He would like to close the SIMPLE IRA and have that money in his Traditional IRA …Thanks – Gregg
Permalink Submitted by Alan - IRA critic on Fri, 2017-09-08 20:07
Yes, since he is long past the 2 year waiting period, he can do a direct transfer from the SIMPLE IRA to his TIRA at anytime.
Permalink Submitted by William Tuttle on Fri, 2017-09-08 23:18
The non-deductible basis will cause a pro-rata Roth conversion with all pre-tax IRA balances in traditional, SEP and SIMPL IRAs. Usually the reason for a SIMPLE IRA is the presence of employees. However, if there are not eligible employees, the client should consider adopting a one-participant 401k for 2018 that accepts incoming IRA rollovers as previously suggested. The cient could then isolate the pre-tax IRA assets by rolling them into the one-participant 401k. This would then leave the non-deductible basis in the IRA, which would allow a little to no cost Roth converesion.