When it comes to transferring money from a SIMPLE IRA to another IRA or employer-sponsored retirement plan, it's important to select the right option for your needs. A traditional or cumulative IRA is generally used for pre-tax assets, as the savings will remain invested with deferred taxes and you won't owe any taxes for the actual reinvestment transaction. However, if you transfer pre-tax assets to a Roth IRA, you will owe taxes on those funds. For after-tax assets, your options are a little more varied. You can transfer the funds to a tax-free Roth IRA, take the funds in cash, or transfer them to an IRA along with your pre-tax savings.
If you choose the latter option, it's important that you keep track of the amount after taxes so that, when you start accepting distributions, you know what funds have already been taxed. The IRS Form 8606 is designed to help you do just that. Before making a decision, consult a tax advisor about your specific situation. If you're moving your IRA from one financial institution to another and don't need to use the funds, you should consider using the transfer method instead of reinvestment. This one-year limit also doesn't apply to traditional IRA transfers to Roth IRAs or to Roth conversions.
To avoid the penalty on your earnings, you must wait five years starting January 1 of the tax year in which you made your first contribution or reinvestment to a Roth IRA. Nor can you make a transfer during this 1-year period from the IRA to which the distribution was transferred. Within 60 days of receiving the distribution check, you must deposit the money into a cumulative IRA to avoid current income taxes. You can add money to your IRA with annual contributions or consolidate other IRA assets or retirement plans previously sponsored by the employer. You have 60 days from the date you received the distribution of an IRA or retirement plan to transfer it to another plan or IRA. Many people use cumulative IRAs to consolidate former employers' plans and access a wider range of investment options.
This change will not affect your ability to transfer funds from one IRA trustee directly to another, since this type of transfer is not a transfer (Tax Resolution 78-406, 1978-2 C). The limit will apply by adding up all of a person's IRAs, including SEP and SIMPLE IRAs, as well as traditional and Roth IRAs, effectively treating them as a single IRA for purposes of the limit. Most of the pre-retirement payments you receive from a retirement plan or IRA can be “reinvested” by depositing the payment into another retirement plan or IRA within 60 days. You can make tax-free transfers from your IRAs at any age, but if you can't refinance your required minimum annual distribution (RMD) it would be considered an excess contribution.
