Use this article to understand when and how you can roll over a SIMPLE IRA into a Gusto 401(k) or Gusto IRA — and what to watch out for before you do.
You can transfer assets between different SIMPLE IRA accounts at any time. Rollovers and transfers to other eligible retirement accounts, like a 401(k), 403(b), or a traditional or Roth IRA, require a 2-year waiting period.
This means you cannot move your SIMPLE IRA assets to these accounts until at least 2 years after the first deposit was made on your behalf into the SIMPLE IRA.
How the 2-year waiting period is measured
Your waiting period starts on the date your employer first deposits money into your SIMPLE IRA account.
This timeline does not reset if your employer moves the SIMPLE IRA plan to a different financial organization, or if you transfer your assets to a new SIMPLE IRA account.
The timing requirement is specific to each SIMPLE IRA plan. For example, if you have a SIMPLE IRA with a prior employer and a separate one with a new employer, the assets in each plan have their own 2-year waiting period.
The 2-year waiting period applies even if you no longer work for the employer who sponsored the SIMPLE IRA.
If you roll over your SIMPLE IRA funds before the 2-year waiting period ends, the IRS treats the amount as a distribution, and you may face significant penalties.
In addition to the typical 10% early withdrawal penalty, SIMPLE IRA distributions are subject to an extra 15% — for a total of 25% on any balance you roll over early
The entire amount is included in your taxable income and treated as current-year contributions to an IRA or as an ineligible rollover from an employer-sponsored plan
While other retirement accounts may waive early withdrawal penalties in certain situations, those exceptions do not apply to SIMPLE IRAs during the 2-year waiting period
Important: Consider consulting a tax advisor before initiating a rollover to understand the full tax impact for your situation.
There is one exception to the 2-year waiting period. It applies when the employer sponsoring the plan terminates the SIMPLE IRA and replaces it with a safe harbor 401(k) or 403(b) plan, and the SIMPLE IRA assets are subject to the same distribution limitations as safe harbor contributions under the replacement plan. This means they cannot be distributed before age 59½, death, disability, or termination from employment.
When this happens, you can roll over your SIMPLE IRA assets to a 401(k) or 403(b) plan even if you have not yet met the 2-year timeline.
Many 401(k) or 403(b) plans do not limit rollover contributions to the safe harbor distribution rules. While most plans at Gusto Retirement do limit rollover contributions to the events allowed for safe harbor contributions, plans that were at a different retirement provider before moving to Gusto Retirement may allow rollover contributions to be distributed earlier. Check your plan’s Summary Plan Description to make sure this requirement is met before initiating a rollover under this exception.
If you met the 2-year waiting requirement and would like to roll over your SIMPLE IRA into your Gusto Retirement account, find your next steps below: