Rolling a SIMPLE IRA into a Traditional IRA is allowed, but only after you have participated in the SIMPLE IRA plan for at least two years. Move the money before that two-year mark and the IRS treats the transfer as a withdrawal, adds it to your taxable income, and tacks on a 25% penalty. After the two years, the rollover works like any other IRA-to-IRA transfer and stays tax-free as long as you follow the right steps.1Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules
The Two-Year Waiting Period
During the first two years of your SIMPLE IRA participation, the only tax-free rollover you can make is into another SIMPLE IRA. Any move into a Traditional IRA, a 401(k), or any other non-SIMPLE account inside that window is treated as a distribution.1Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules
The clock starts on the first day your employer deposited contributions into your SIMPLE IRA. That includes salary-reduction contributions from your paycheck as well as employer matching or nonelective contributions.2Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans Write that date down. Miscounting by a few days can trigger the penalty.
Once two full years have passed, you can roll the funds tax-free into a Traditional IRA, a SEP IRA, or an employer plan such as a 401(k) or 403(b). You can also convert to a Roth IRA at that point, though pretax money moved into a Roth is taxable in the year of conversion.1Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules
What Happens If You Move the Money Too Early
An early rollover to a Traditional IRA is not a rollover in the eyes of the IRS. The full transferred amount is added to your gross income and taxed at your ordinary rate, and the IRS imposes a 25% additional tax on top of that. That is more than double the standard 10% early-withdrawal penalty that applies to most other IRA distributions.3Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
Exceptions That Waive the 25% Penalty
The 25% additional tax does not apply if you are at least 59½ when the distribution occurs, if you are permanently disabled, if the distribution goes to a beneficiary after the account holder’s death, or if you qualify for one of the other exceptions that apply to early IRA distributions generally, such as unreimbursed medical expenses above a set percentage of your adjusted gross income or a series of substantially equal periodic payments.1Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules An exception waives the penalty. It does not make the money tax-free. Unless the funds land in another SIMPLE IRA, the distribution is still ordinary income.
Direct or Indirect: How to Move the Money
Once the two-year period has passed, you have two ways to move the balance. The choice matters.
Direct Trustee-to-Trustee Transfer
In a direct transfer, your SIMPLE IRA custodian sends the funds straight to the Traditional IRA custodian, either electronically or by issuing a check payable to the new trustee for your benefit. Nothing is withheld because you never take personal possession of the money.4Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions A direct transfer also does not count against the one-rollover-per-year limit that the IRS applies to indirect IRA rollovers.5Internal Revenue Service. Topic No. 451, Individual Retirement Arrangements (IRAs)
Indirect 60-Day Rollover
With an indirect rollover, the SIMPLE IRA custodian pays the distribution to you personally. You then have 60 days to deposit the full amount into a Traditional IRA. Miss the deadline and the distribution becomes taxable.4Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
Two things make this method risky. First, because a SIMPLE IRA is classified as an IRA rather than an employer-sponsored plan, the custodian withholds 10% for federal taxes by default unless you opt out. You must still redeposit the full original amount, including the portion that was withheld, within 60 days. Otherwise the shortfall is treated as a taxable distribution. You recover the withheld money when you file your return.4Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Second, the IRS allows only one indirect IRA-to-IRA rollover in any 12-month period across all of your IRA accounts. If you have already done one in the past year, a second indirect rollover will be fully taxable.5Internal Revenue Service. Topic No. 451, Individual Retirement Arrangements (IRAs)
For most people, a direct trustee-to-trustee transfer is the simpler and safer choice.
Steps to Complete the Rollover
The process usually takes two to four weeks, depending on how quickly the custodians process paperwork.
- Confirm eligibility. Verify that at least two years have passed since your employer’s first contribution to your SIMPLE IRA. Your custodian or plan administrator can confirm the exact date.
- Open the receiving Traditional IRA if you don’t already have one. You will need the new account number and the institution’s address for the transfer paperwork.
- Submit a rollover request to your SIMPLE IRA custodian. Ask specifically for a direct trustee-to-trustee transfer. Most firms have a rollover form that asks for your Social Security number, both account numbers, and either a dollar amount or a percentage.
- Track the transfer. The SIMPLE IRA custodian will either wire the funds or mail a check payable to the new trustee. Watch the receiving account for a pending deposit.
- Invest the money once it arrives. Rolled-over funds land as cash in a settlement or money market account and do not automatically buy anything. If you don’t choose investments, the balance will sit and earn very little.
Rolling Over While Still Employed
You do not have to leave your job to do this. As long as the two-year period is up, you can move some or all of the SIMPLE IRA balance while you’re still working for the employer that sponsors the plan.6Internal Revenue Service. SIMPLE IRA Plan
One thing to plan for: your employer’s matching or nonelective contributions on future earnings will keep going into the SIMPLE IRA, not the Traditional IRA. If you want everything consolidated, you’ll need to repeat the rollover periodically as new contributions accumulate.
Reporting the Rollover on Your Taxes
Even a completely tax-free rollover has to be reported. Your SIMPLE IRA custodian will issue a Form 1099-R for the year of the distribution, and the code in box 7 tells the IRS what kind of payout it was.7Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. The receiving Traditional IRA custodian will issue a Form 5498 documenting the rollover contribution.8Internal Revenue Service. Form 5498 – IRA Contribution Information
On your Form 1040, put the total distribution on line 4a and the taxable amount on line 4b. For a complete rollover, line 4b is zero.9Internal Revenue Service. 2025 Instructions for Form 1040 Accurate reporting keeps the IRS from treating the transaction as taxable income. A rollover does not count toward your annual IRA contribution limit, so you can still make a regular contribution in the same year.
What Changes Once the Money Is in a Traditional IRA
After the rollover, the money follows Traditional IRA rules going forward. Two of those rules deserve attention before you file.
The Pro-Rata Rule
If you have ever made nondeductible (after-tax) contributions to any Traditional IRA, the IRS treats all of your Traditional IRAs as one combined pool for tax purposes. You cannot choose to withdraw or convert only the after-tax dollars. The taxable share of any future distribution is calculated from the ratio of pretax to after-tax money across every Traditional IRA you own.10Internal Revenue Service. 2025 Instructions for Form 8606 – Nondeductible IRAs Rolling in a SIMPLE IRA balance adds to the pretax side of that pool, which matters if you’re planning a Roth conversion later. The bigger the pretax share, the bigger the taxable portion of the conversion. You track this on Form 8606 each year.
Required Minimum Distributions
SIMPLE IRAs and Traditional IRAs are both subject to required minimum distributions. Under current rules, you must begin annual withdrawals from a Traditional IRA by April 1 of the year after you turn 73, with the starting age scheduled to move to 75 in 2033.11Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs A rollover does not reset or delay that timeline. The RMD depends on your age, not on when you moved the money. On the practical side, consolidating a SIMPLE IRA into a Traditional IRA does simplify things once RMDs begin, because you’re calculating and taking one distribution instead of two.