The rules in one table
| SEP IRA | SIMPLE IRA | |
|---|---|---|
| Roll to a traditional IRA | Yes | Only after the two-year period |
| Roll to an employer plan (401(k), 403(b), governmental 457(b)) | Yes | Only after the two-year period |
| Roll to a Roth IRA | Yes, the untaxed amount is included in income | After two years, and the untaxed amount is included in income |
| First two years in the plan | No special lock | Only another SIMPLE IRA |
Source: the IRS rollover chart and IRS SIMPLE IRA transfer rules.
How the two-year clock works
The IRS counts two years from the date you first participated in your employer’s SIMPLE IRA plan. During that period, a transfer to anything other than another SIMPLE IRA is treated as a withdrawal: you include the amount in income and pay an additional 25% tax, unless you are at least 59½ at the time of the transfer or qualify for another exception. Note the nuance: being over 59½ avoids the 25% additional tax, but the amount is still included in your income.
The traps
- 10% becomes 25%. Withdrawals from a SIMPLE IRA before 59½ normally face a 10% additional tax, which rises to 25% within two years of first participating.
- One rollover per 12 months. The limit applies across all your IRAs together, including SEP and SIMPLE. It does not apply to trustee-to-trustee transfers, so ask for a direct transfer (IRS: Rollovers of retirement plan and IRA distributions).
- Do not take a check. A check payable to you can start the 60-day clock and count as your one rollover for the year.
- Ownership paperwork. Keep the SIMPLE IRA statements that show your first participation date. Ask your plan sponsor or the custodian for it in writing.
Where an annuity fits
After a valid rollover, the money is in a traditional IRA and follows IRA rules. Buying an annuity inside it does not add tax deferral, and it can add surrender charges. For a business owner who still contributes to a SEP or SIMPLE plan, an annuity is one of several ways to hold the rolled money, not a replacement for the plan. See every rollover account at a glance.
Own a small business? Check the timeline before you move.
Request a no-obligation Retirement Income Review. We explain your options in plain English, with no pressure and no promises of returns.
Request my Retirement Income ReviewQuestions to ask
- What was the date I first participated in the SIMPLE IRA plan?
- Can this be done as a trustee-to-trustee transfer?
- Have I done another IRA-to-IRA rollover in the last 12 months?
- Will the annuity sit in a traditional IRA or a Roth IRA, and what is the tax result of that choice?
Related reading
See Roth rollovers, the age 55 rule and how annuities are taxed.
Where to check these rules
Every rule on this page comes from the IRS. Read the source for your situation:
- IRS: SIMPLE IRA withdrawal and transfer rules
- IRS rollover chart (PDF)
- IRS: Rollovers of retirement plan and IRA distributions
- IRS: Exceptions to tax on early distributions
Availability and rules vary by state
Life insurance and annuity products, rates, riders and consumer protections differ by state, and a given product may not be available in every state. Honorbrook is licensed in the 11 states below; which products we can offer you depends on what carriers sell in your state. Each state’s insurance regulator can verify an agent’s license and answer consumer questions.
- Virginia: Virginia Bureau of Insurance
- Maryland: Maryland Insurance Administration
- North Carolina: North Carolina Department of Insurance
- South Carolina: South Carolina Department of Insurance
- Georgia: Georgia Office of Insurance and Safety Fire Commissioner
- Alabama: Alabama Department of Insurance
- Louisiana: Louisiana Department of Insurance
- Texas: Texas Department of Insurance
- Michigan: Michigan Department of Insurance and Financial Services
- Indiana: Indiana Department of Insurance
- West Virginia: West Virginia Offices of the Insurance Commissioner
This article is general information and is not tax, legal, investment or financial advice. Annuity guarantees depend on the issuing company’s claims-paying ability, and surrender charges and fees may apply. A licensed agent can help with your situation.