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What Are SIMPLE IRA Withdrawal Rules?

By    |   Tuesday, 02 Jun 2015 04:28 PM

Because Savings Incentive Match Plans for Employees (SIMPLE) IRAs intertwine workers’ retirement savings with their place of work, it can often be overwhelming or intimidating to withdraw funds from the type of plan.

SIMPLE IRA plans allow small business owners with fewer than 100 employees to set up retirement savings account for their employees. Employees are the main contributors to
SIMPLE IRA plans but employers also make contributions equal to 1-3% of the employee’s salary.

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SIMPLE IRA plans have fewer withdrawal rules than other IRA plans, as withdrawals may be made at any time and may not be restricted by an employer.

Withdrawals from SIMPLE IRAs are subject to the same tax consequences and rules as traditional IRAs. Below are additional important rules for making withdrawals from SIMPLE IRA plans:

Early Withdrawal
Withdrawals before the age of 59 ½ are subject to a 10 percent tax consequence unless the withdrawal is made because of a first-time home purchase, education expense, death or disability, or medical expense.

Withdrawals made from a SIMPLE IRA plan within the first two years of its initial establishment are likely to be subject to additional income taxes up to 25%.

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Withdrawals Between 59 ½ and 70 ½
After the age of 59 ½, there is no longer a 10 percent penalty for withdrawal. However, withdrawals are subject to federal and state taxes.

Withdrawals after 70 ½
After the age of 70 ½ SIMPLE IRA plan holders are required to make withdrawals that are known as required minimum distributions (RMDs). It is permissible to withdraw more than the RMD amount at any given time but withdrawals may be taxable as your income.

Transfer Withdrawals
During the first 2-years of the plan, withdrawals may only be transferred to other SIMPLE IRA plans. After the first 2 years of a SIMPLE IRA plan withdrawals can typically be transferred into other types of IRA plans (but not Roth IRA plans) or into other workplace retirement plans such as 401(k), 403(b), and 457(b) plans.

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Because Savings Incentive Match Plans for Employees (SIMPLE) IRAs intertwine workers' retirement savings with their place of work, it can often be overwhelming or intimidating to withdraw funds from the type of plan.
simple ira, withdrawal, rules
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2015-28-02
Tuesday, 02 Jun 2015 04:28 PM
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