Why should you perform a Simple IRA Rollover? The considerations you should make when asking that question are largely the same that any person considering an IRA rollover should ask, along with a few special questions pertaining specifically to Simple IRAs.
The first consideration must be your short and long term financial strategies. IRAs have two chief attributes benefits – deferring taxes on a portion of your income and allowing you to create a nest egg for retirement. Only with a clear understanding of what kinds of funds and investments you need for retirement and what kinds of tax benefits you need now can you make a fully informed financial decision. So the first answer to the question, “Why perform a Simple IRA rollover?” should be, “Because it furthers my short and long term financial strategies.”
Second, you need to consider how well your Simple IRA plan is performing. While many people assume they must rollover an IRA account when they change jobs, you aren’t actually required to do so. Changing jobs is a good time to reevaluate your financial position and goals, and if there’s a good reason to perform a rollover, it’s an excellent time to do so.
If your Simple IRA is performing well, you may not want or need to perform a rollover. On the other hand, your answer to the question, “Why perform a Simple IRA rollover?” may be, “I have the opportunity to improve my investment return.” That opportunity for improved investment return could be a new IRA with a new employer that offers different investment options, or a new IRA that you’ve opened as an individual.
Next, you must ask yourself a question specific to your Simple IRA – how long have you been participating? Generally, you need to have been participating in a Simple IRA for a period of at least two years from the date of your first contribution before you can perform a rollover. If you haven’t been participating for at least two years, you may want to reevaluate whether a rollover is a good step for you until that time arrives.
In the end, the best reasons to perform a Simple IRA rollover are because it furthers your financial strategies and you have an opportunity to increase your investment income. Consider carefully, however, how that rollover will be handled. To protect your investment, you want to minimize the risk of any withholding, taxes and penalties. A direct transfer from your Simple IRA to a new qualified IRA will offer you the most protection. While it is possible to receive the funds from your Simple IRA and contribute themselves to a new IRA, the process is more complex and involved and will subject you to a 20% withholding fee, at a minimum.
If you find yourself feeling confused about what your short and long term retirement strategies should be, or if you feel overwhelmed looking at financial reports trying to determine whether or not a rollover will increase your rate of return, you may want to seek professional advice on your investment matters. A qualified financial advisor can help you ensure that your retirement savings are growing according to plan, ready to provide for you later in life.