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Subject:  SIMPLE transfer Date:  11/10/2003  11:04 AM
Author:  nbg Number:  37746 of 104883

Cross-posted on the Tax Strategies board…

My employer began a SIMPLE plan well over two years ago, thus I've been depositing into it for over two years. My employer uses a Designated Financial Institution for all contributions, but I wish to transfer my balance to a different custodian. Per my plan Summary, I can do this without cost or penalty into another SIMPLE IRA. Per IRS Pub. 590 quoted below, it's obvious that due to my tenure I can make that transfer to a Traditional IRA instead.

“Two-year rule. To qualify as a tax-free rollover (or a tax-free trustee-to-trustee transfer), a rollover distribution (or a transfer) made from a SIMPLE IRA during the 2-year
period beginning on the date on which you first participated in your employer's SIMPLE plan must be contributed (or transferred) to another SIMPLE IRA. The 2-year period begins on the first day on which contributions made by your employer are deposited in your SIMPLE IRA.

After the 2-year period, amounts in a SIMPLE IRA can be rolled over or transferred tax free to an IRA other than a SIMPLE IRA, or to a qualified plan, a tax-sheltered annuity (section 403(b) plan), or deferred compensation plan of a state or local government (section 457 plan).”

My questions are: after this initial transfer can I have the Designated Institution automatically transfer all subsequent SIMPLE contributions into the Traditional IRA as they're deposited? If so, are there any further restrictions on how I can treat those funds (future transfers, conversions, etc…)?

It appears this would effectively increase my yearly IRA contribution limit beyond the $3000 for my Roth (in 2003) by the limit I can put into a SIMPLE. And if that's the case, it seems that after the 2-year period a SIMPLE IRA is no different than a Traditional once the contributions are made. (This sounds very much like how a SEP works—the topic of a question posted not long ago.)

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