What to do with small SIMPLE IRA?

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wassabi
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Joined: Sun Feb 02, 2014 8:06 am

What to do with small SIMPLE IRA?

Post by wassabi » Fri Nov 08, 2019 6:26 am

My wife was with a company for only a few months and had to leave (we had a child). She has a $700 SIMPLE IRA and I'm wondering if we should open a Rollover IRA with Vanguard or just cash it out. She has a brokerage and Roth IRA at Vanguard but would be required to open the Rollover account.

Is it worth having another account open to rollover only $700 (a very insignificant portion of our total accounts)?

Silk McCue
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Joined: Thu Feb 25, 2016 7:11 pm

Re: What to do with small SIMPLE IRA?

Post by Silk McCue » Fri Nov 08, 2019 7:40 am

EDIT - See Spirit Rider post below.

Cashing it out would incur a penalty. 10% I believe. I would convert it to Roth at Vanguard if you don't want a small IRA sitting around.

Congratulations on your the addition to your family!

Cheers
Last edited by Silk McCue on Fri Nov 08, 2019 10:55 am, edited 1 time in total.

HomeStretch
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Re: What to do with small SIMPLE IRA?

Post by HomeStretch » Fri Nov 08, 2019 7:46 am

The employer plan can, if it wants, “force out” the small balance from the plan. Go ahead and roll it over to a Roth IRA.

retiredjg
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Re: What to do with small SIMPLE IRA?

Post by retiredjg » Fri Nov 08, 2019 7:52 am

I don't think she can do anything with it without a 10% penalty for 2 years after the first contribution. However, the employer might be able to distribute it because it is such a small amount.

Either way, I'd just roll it to Roth IRA and pay the taxes. And the penalty if you don't want to wait the 2 years.

Spirit Rider
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Re: What to do with small SIMPLE IRA?

Post by Spirit Rider » Fri Nov 08, 2019 10:18 am

A SIMPLE IRA can only be rolled over to another SIMPLE IRA for two years after the first contribution.

A withdrawal or Roth conversion during the two year period would be subject to a 25% penalty.

retiredjg
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Re: What to do with small SIMPLE IRA?

Post by retiredjg » Fri Nov 08, 2019 10:25 am

:shock:

That's a lot.

Silk McCue
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Re: What to do with small SIMPLE IRA?

Post by Silk McCue » Fri Nov 08, 2019 10:50 am

Spirit Rider wrote:
Fri Nov 08, 2019 10:18 am
A SIMPLE IRA can only be rolled over to another SIMPLE IRA for two years after the first contribution.

A withdrawal or Roth conversion during the two year period would be subject to a 25% penalty.
Landmines everywhere in the tax code - OUCH!

Cheers

Spirit Rider
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Re: What to do with small SIMPLE IRA?

Post by Spirit Rider » Fri Nov 08, 2019 1:22 pm

Hopefully, the two year period has or will soon expire. If not, the only practical thing is to do is wait.

retiredjg
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Re: What to do with small SIMPLE IRA?

Post by retiredjg » Fri Nov 08, 2019 5:09 pm

Spirit Rider wrote:
Fri Nov 08, 2019 10:18 am
A SIMPLE IRA can only be rolled over to another SIMPLE IRA for two years after the first contribution.
By this, do you also mean the employer has no ability to push that money out like they can for a low balance in a 401k?

Spirit Rider
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Re: What to do with small SIMPLE IRA?

Post by Spirit Rider » Fri Nov 08, 2019 11:30 pm

SEP or SIMPLE IRA contributions are the property of the account owner immediately when deposited. The accounts are only subject to IRS rules and regulations. The employer has no say in what the account owner does or doesn't do with the account.

retiredjg
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Re: What to do with small SIMPLE IRA?

Post by retiredjg » Sat Nov 09, 2019 7:15 am

Thanks.

Topic Author
wassabi
Posts: 471
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Re: What to do with small SIMPLE IRA?

Post by wassabi » Sat Nov 09, 2019 7:48 am

Spirit Rider wrote:
Fri Nov 08, 2019 10:18 am
A SIMPLE IRA can only be rolled over to another SIMPLE IRA for two years after the first contribution.

A withdrawal or Roth conversion during the two year period would be subject to a 25% penalty.
She started the account in June 2019, so it looks like we'll have to keep the Fidelity account until June 2021 before making a switch. Thanks for the information!

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