To make a long story short, the answer is yes – it is possible for you to perform a Simple IRA rollover to 401k. The government recognizes the need to transfer money when you change employment or approach retirement, so they’ve enacted legislation to convert Simple IRA Rollover to 401k possibility.
However, if you do decide to do a Simple 401k rollover, you’ll need to be aware of the rules and procedures you must follow when performing this transaction.
Simple IRA Rollover Rules
For starters, to make a direct transfer from your old Simple IRA to your new 401k, you’ll need to ensure that it has been at least 2 years since you first began contributing to your Simple IRA plan. If you remove funds from a Simple IRA within the first two years that the account has been established, you’ll have to pay a 25% penalty on the funds that you withdraw. To avoid these costs, it’s better to remain with your current Simple IRA plan provider until at least two years have passed.
In addition, if you perform an indirect rollover – where you remove funds from your Simple IRA as a cash distribution instead of a direct check to the new account – make sure that you deposit your funds to your new 401k within sixty days. If you miss this window, you’ll be hit with a 10 – 20% tax, depending on how long you’ve contributed to your current Simple IRA plan.
Should You Do a Simple IRA Rollover to 401k?
If you’re considering a transfer from a Simple IRA to a 401k, it’s a good idea to think carefully about the relative advantages and disadvantages of each account provider.
Because both Simple IRA plans and 401k plans are managed by employers, they both likely have a limited selection of investment opportunities. Both of these types of plans are able to offer different types of investment vehicles, including stocks, bonds and mutual funds. However, not all employers offer a similar level of variety – you may find that doing a Simple IRA rollover to 401k seriously limits your investment choices.
Additionally, it’s a good idea to look into what kinds of fees you might be expected to pay and what type of provider you’ll be switching too. Some Simple IRAs charge employees small fees if they fall below a certain minimum balance – if you’ve often been assessed these charges, switching to a 401k account with no fees could save you some money. Alternatively, if your Simple IRA is hosted with a well-known, reputable provider and your new 401k account provider has had many negative reviews, you may want to keep your money in the Simple IRA plan.
Performing a Simple IRA Rollover
The key steps that you’ll need to follow in order to transfer your Simple IRA funds to a 401K are as follows:
- Read the new 401k product disclosure summary to ensure that you are, in fact, allowed to transfer a lump sum amount directly from your Simple IRA.
- The amount that you rollover from your Simple IRA to your 401k will count towards your Simple IRA contribution limits for your new account. To determine if you’re eligible to deduct your yearly contributions from your annual income, you’ll need to check the details and amounts of your old and new account.
- Ask your Simple IRA trustee for the necessary paperwork for a Simple 401k rollover. Fill it out completely and follow up with your trustee to ensure things proceed correctly.
- Check your first pay slip to see evidence of your new 401K plan.
Once your new 401k plan is established, request a statement to ensure that your funds have arrived – you should be automatically sent one anyway.