Putting money into your SIMPLE IRA account is much easier than taking it out. You’ll need to pay income taxes on the money you withdraw, and if it’s taken out before you’re 59½, there’s a 10% or 25% additional tax.
The tax is 10% if you withdraw before you’re 59½, and it jumps to 25% if it’s withdrawn within two years of when you first participated in the plan.
You don’t have to pay additional taxes if:
- You’re disabled
- The withdrawal is in the form of an annuity
- You’re the beneficiary of a deceased SIMPLE IRA holder
- The withdrawal is due to an IRS levy
Sometimes, as a tax-free rollover, you can transfer money from your SIMPLE IRA to another IRA, like the Roth IRA, or to an employer-sponsored retirement plan. During the first two years, you can only transfer money to another SIMPLE IRA account or it will be considered a withdrawal.
Starting in 2015, the law changed, allowing SIMPLE IRAs to accept transfers from other IRA accounts or employer-sponsored retirement plans. But there are many restrictions related to this, including:
- The transfer needs to be made after December 18, 2015
- It can’t accept rollover contributions from other accounts
- Only for transfers after two years
It might be helpful to use a SIMPLE IRA calculator to help calculate how much you’ll acculaumate when it’s time to retire.