What to Do With a SIMPLE IRA After Leaving Your Job?

After leaving a job, you generally have three things you can do with a SIMPLE IRA: leave it with the current custodian, roll it into another retirement account, or take the cash. Which of those is actually available without a heavy penalty depends on one date — the day your employer first deposited money into the account. For two years after that date, the IRS restricts where SIMPLE IRA money can go, and a wrong move during that window costs 25% on top of income tax.¹ The balance itself is entirely yours; every contribution you made and every employer match vested immediately.²

Check the Two-Year Clock First

The two-year period runs from the first day your employer deposited a contribution into your SIMPLE IRA, not from your hire date or the day you signed the plan paperwork.² The custodian’s transaction history shows the exact date. Leaving your job does not pause or restart the clock.

During those two years, the only tax-free move is to another SIMPLE IRA. Any transfer to a traditional IRA, Roth IRA, 401(k), or other non-SIMPLE account is treated as a taxable distribution and, if you are under 59½, hit with a 25% additional tax instead of the usual 10%.¹³

There is one narrow exception. If your former employer terminates the SIMPLE IRA plan entirely and replaces it with a 401(k) or 403(b), a rollover from the SIMPLE IRA into that new employer plan escapes the 25% penalty even inside the two-year window.³

Leave the Money Where It Is

Doing nothing is a legitimate choice. Contributions stop, but the account stays in your name, the investments keep growing tax-deferred, and you continue to choose among whatever the custodian offers.

The cost to watch is fees. Some custodians charge annual maintenance fees per fund and may not waive them for smaller balances. Pricing can also shift once payroll contributions stop, so ask the custodian for a current fee schedule after you leave. If fees are cutting into returns and you have cleared the two-year mark, a rollover to a lower-cost IRA is worth considering.

Roll Over to a Traditional IRA

Once the two years are up, moving the balance into a traditional IRA is usually the cleanest option. You owe no tax and no penalty, the money keeps its tax-deferred status, and a personal IRA typically opens up a much wider investment menu than a SIMPLE IRA.⁴

Do it as a direct trustee-to-trustee transfer. You open the traditional IRA at your chosen institution and let the two custodians move the funds between themselves. The money never passes through your hands, so nothing is withheld and there is no 60-day deadline to worry about.

Convert to a Roth IRA

You can also move SIMPLE IRA money into a Roth IRA after the two years, but this generates a tax bill. Your SIMPLE contributions were pre-tax, so the entire converted amount is taxable income in the year of the conversion, reported on Form 8606.⁵ In return, qualified Roth withdrawals in retirement come out tax-free.

The math tends to favor a conversion when your current tax bracket is lower than the one you expect to be in later. A gap between jobs, when annual income is temporarily down, is a common trigger. A Roth conversion also does not count against the one-rollover-per-year limit described below.⁶

Under SECURE 2.0, some employers now offer Roth SIMPLE IRAs that take after-tax salary deferrals.⁷ If your contributions were already Roth, converting those amounts to a Roth IRA would not create additional income tax on the contributions.

Move the Money Into a New Employer’s Plan

If your new job offers a 401(k) or 403(b), you may be able to roll the SIMPLE IRA into it — again, only after the two-year period has ended.¹ Not every plan accepts incoming rollovers, so ask your new employer’s benefits or HR contact whether the plan document allows roll-ins, and get the plan’s official name, trustee address, and your participant account number.

Consolidation makes tracking easier and can give you access to institutional-class funds at lower cost. The trade-off is a narrower investment menu than a personal IRA, so weigh both sides before committing.

If You Need to Move the Money Inside the Two-Year Window

Your only penalty-free option during the two years is a transfer to a different SIMPLE IRA, which you might use to reach better investment choices or lower fees.¹ Ask the receiving custodian to initiate a trustee-to-trustee transfer.

Any move to a non-SIMPLE account during this window is a taxable distribution. You would owe income tax on the full amount plus the 25% additional tax, unless a listed exception applies.³

Cashing Out

You can take the balance in cash at any time, but the cost is usually significant. The custodian withholds at least 10% for federal income taxes unless you opt out, and you owe ordinary income tax on the full amount when you file.⁴

If you are under 59½, an additional penalty stacks on top:

Within the first two years of participation, a 25% additional tax applies.¹
After the two-year period, the standard 10% early withdrawal penalty applies.⁸

At 59½ or older, no additional penalty applies regardless of the two-year period. You still owe ordinary income tax on the withdrawal.¹

When the Early Withdrawal Penalty Is Waived

Both the 25% and 10% additional taxes have exceptions. The IRS allows penalty-free withdrawals from a SIMPLE IRA in situations including:¹

Total and permanent disability.
Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income.
Health insurance premiums paid after losing your job.
Qualified higher education expenses for you or a family member.
Up to $10,000 toward buying, building, or rebuilding a first home.⁸
A series of substantially equal periodic payments based on your life expectancy.
An IRS levy on the account.
A qualified reservist distribution after being called to active military duty.
Distributions to a beneficiary after the account owner’s death.

An exception cancels the additional tax only. Ordinary income tax on the withdrawal still applies. If the custodian’s Form 1099-R does not reflect the correct exception code, you can claim the exception yourself by filing Form 5329 with your return.⁸

Direct Transfer vs. 60-Day Rollover

Any rollover you do should be a direct trustee-to-trustee transfer whenever possible. The money moves between custodians without you taking possession, nothing is withheld, and there is no deadline to miss.

An indirect rollover works differently. The custodian sends the funds to you, typically with 10% withheld, and you have 60 days to deposit the full original amount into the receiving retirement account — including the withheld portion, which you have to make up from other cash.⁴ Miss the 60 days and the whole distribution becomes taxable, plus the applicable early withdrawal penalty if you are under 59½. The IRS occasionally waives the deadline for circumstances outside your control, but do not plan around that.

Indirect rollovers are also capped at one per 12 months across all your IRAs combined, including traditional, Roth, SEP, and SIMPLE accounts. A second indirect rollover inside that window is treated as a taxable distribution.⁶ Direct trustee-to-trustee transfers do not count against that limit, which is another reason to use them.

1
Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules
2
Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans
3
Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
4
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
5
Internal Revenue Service. About Form 8606, Nondeductible IRAs
6
Internal Revenue Service. Application of One-Per-Year Limit on IRA Rollovers Announcement 2014-32
7
Internal Revenue Service. SECURE 2.0 Act Changes Affect How Businesses Complete Forms W-2
8
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions