Yes, you can roll a SIMPLE IRA into a Traditional IRA, but only after a two-year waiting period that starts the day your employer first deposited money into the SIMPLE account. Move the funds before that window closes and the IRS charges a 25% penalty on the distribution instead of the usual 10%. Once the two years are up, rolling a SIMPLE IRA into a Traditional IRA works like any other IRA-to-IRA rollover.
When the Two-Year Clock Starts and Ends
The waiting period comes from 26 U.S.C. § 408(p)(1)(B), which restricts the kinds of rollovers a SIMPLE IRA can send or receive during the account’s first two years.1Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts The clock does not begin when you signed the paperwork or when the account was opened. It begins on the date your employer first deposited a contribution into the plan on your behalf.2Internal Revenue Service. Instructions for Forms 1099-R and 5498
During those two years, money can still leave the SIMPLE IRA, but only into another SIMPLE IRA. A SIMPLE-to-SIMPLE rollover is available immediately, which matters if you change jobs and your new employer also offers a SIMPLE plan. Anything else, including a rollover to a Traditional IRA, a 401(k), or a Roth IRA, is off-limits until the waiting period ends.3Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules
The 25% Penalty for Rolling Over Too Early
Under 26 U.S.C. § 72(t)(6), any amount pulled from a SIMPLE IRA during the initial two-year period and not deposited into another SIMPLE IRA carries a 25% additional tax. That is more than double the standard 10% early-distribution penalty.4Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts The full distribution also counts as ordinary income for the year, which can push you into a higher bracket on top of the surcharge.1Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
Situations That Waive the 25%
The IRS recognizes a handful of exceptions to the 25% penalty during the two-year period:
- Distributions taken after age 59½.
- Distributions made because of a qualifying disability.
- Distributions to beneficiaries after the account holder’s death.
- Distributions taken as a result of an IRS levy on the account.
- Distributions for unreimbursed medical expenses above the applicable threshold, medical insurance premiums while unemployed, qualified higher education expenses, or first-home purchases.
These exceptions remove the additional tax, but the money is still taxed as ordinary income unless it lands in another SIMPLE IRA through a valid rollover.3Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules
How to Move the Money Once You’re Eligible
After the two years have passed, you have two ways to get the funds into a Traditional IRA. The choice affects withholding, deadlines, and how many other rollovers you can do that year.
Direct Trustee-to-Trustee Transfer
In a direct transfer, your SIMPLE IRA custodian sends the funds straight to the Traditional IRA provider. The money never passes through your hands. Nothing is withheld for taxes, no 60-day deadline applies, and the transaction does not count against the one-rollover-per-year limit.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions For most people, this is the cleanest route.
To start one, contact the receiving institution and ask for their transfer paperwork. You’ll need your current SIMPLE IRA account number, the name and address of the current custodian, and the details of the new Traditional IRA.
Indirect 60-Day Rollover
With an indirect rollover, the SIMPLE IRA custodian sends a check to you or deposits the funds in your personal bank account. You then have 60 days to get the full amount into a Traditional IRA. Miss the deadline and the entire distribution becomes taxable income, plus a possible 10% early-distribution penalty if you’re under 59½.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
There’s a withholding trap worth flagging. When an IRA distribution is paid to you, the custodian typically withholds 10% for federal taxes unless you elect out. Say $50,000 leaves the SIMPLE IRA and $5,000 is withheld. To avoid tax on the shortfall, you still have to deposit the full $50,000 into the Traditional IRA within 60 days, meaning you cover that $5,000 out of pocket and recover it at tax time.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
The One-Rollover-Per-Year Rule
If you use the indirect method, the IRS limits you to one IRA-to-IRA rollover in any 12-month period. The rule looks across all of your IRAs, including Traditional, Roth, SEP, and SIMPLE, and treats them as a single pool. A second indirect rollover inside that 12-month window means the excess is taxed as income and can trigger a 6% excess-contribution penalty if it sits in the receiving IRA.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
Direct trustee-to-trustee transfers do not count toward this limit. You can do as many of them in a year as you like. That is the single biggest practical reason to pick a direct transfer over a 60-day rollover.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
If You Miss the 60-Day Deadline
Under Revenue Procedure 2016-47, the IRS allows a self-certification process for taxpayers who missed the 60-day window for specific qualifying reasons. Those include a financial institution’s error, a serious illness or death in the family, a misplaced check that was never cashed, severe damage to your home, incarceration, and postal errors.6Internal Revenue Service. Revenue Procedure 2016-47 – Waiver of 60-Day Rollover Requirement
The process involves writing a letter to the receiving institution certifying why you missed the deadline. The IRS publishes a model letter you can copy word-for-word. Once accepted, the institution can treat the deposit as a valid rollover, though the IRS can still challenge it on audit. Keep a copy of the letter and every related document. This is not a general do-over for people who simply forgot or spent the money.
Roth IRA as an Alternative Destination
Once the two-year period ends, a Traditional IRA is not the only option. You can also convert SIMPLE IRA funds to a Roth IRA. A Roth conversion is taxable: any pretax amount you move becomes part of your gross income for that year. The 10% early-distribution penalty does not apply because the funds land in a qualified retirement account.3Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules A Roth conversion is not available during the first two years of SIMPLE IRA participation.
The Tax Forms You’ll Receive
Even a fully tax-free rollover creates paperwork. Two forms matter.
The institution that held your SIMPLE IRA sends IRS Form 1099-R by January 31 of the year after the distribution. Box 7 carries a distribution code identifying the transaction. A direct rollover to another qualified plan usually shows Code G. A distribution from a SIMPLE IRA taken inside the two-year window with no exception applied shows Code S, flagging the 25% penalty.2Internal Revenue Service. Instructions for Forms 1099-R and 5498
The Traditional IRA custodian then files IRS Form 5498 confirming that the rollover contribution was received, typically by the end of May following the tax year. Together, the two forms create a paper trail showing the money stayed within the retirement system. You report the rollover on your federal return for the year, noting that the 1099-R amount is not a taxable withdrawal.7Internal Revenue Service. General Instructions for Certain Information Returns (2025) Keep copies of both forms and any transfer confirmations for at least seven years in case the IRS ever questions the transaction.