How to Convert a Simple IRA

Four Methods:The cash distribution optionConvert to the Simple IRA to another plan administrator.Roll-over to an Employer's 401(k).Convert to a Roth IRA.

There are many options for converting a Simple IRA (Individual Retirement Account). You will have to decide what you would like to convert to: cash, a Simple IRA with another administrator, an employer's 401(k) plan, or a Roth IRA. That decision will affect how to convert a Simple IRA.

Method 1
The cash distribution option

  1. Image titled Convert a Simple IRA Step 1
    1
    Contact your Simple IRA plan administrator (most likely a bank or other savings institution, an insurance company, or a brokerage) and ask for a cash distribution.
  2. Image titled Convert a Simple IRA Step 2
    2
    Listen to the administrator's advice.
    • This 3rd party administrator is required by law to advise you of your rights and consequences.
    • The administrator is responsible for making you aware of any additional expenses that may be incurred from the conversion.
  3. Image titled Convert a Simple IRA Step 3
    3
    Request the cash distribution if you are willing to pay the tax and withdrawal fee consequences, if any.
  4. Image titled Convert a Simple IRA Step 4
    4
    Send the check to the new plan administrator.

Method 2
Convert to the Simple IRA to another plan administrator.

  1. Image titled Convert a Simple IRA Step 5
    1
    Research and choose another administrator's plan carefully.
    • Look at the bank's security or the brokerage's reputation or the program's diversification.
  2. Image titled Convert a Simple IRA Step 6
    2
    Contact the new plan administrator, and tell them that you want to convert your Simple IRA.
  3. Image titled Convert a Simple IRA Step 7
    3
    Follow their directions carefully.
  4. Image titled Convert a Simple IRA Step 8
    4
    Ask the new plan administrator to test your risk tolerance.
    • Seek plans, funds, and options that may manage your funds more aggressively or conservatively to fit your risk profile and needs.
    • The new administrator will take care of the administrative conversion, but they will also advise you how to sign the forms and answer the questions that may come from the current plan administrator.
  5. Image titled Convert a Simple IRA Step 9
    5
    Receive the check - made out to your name and account number at the new plan administrator - from the current plan administrator.

Method 3
Roll-over to an Employer's 401(k).

  1. Image titled Convert a Simple IRA Step 10
    1
    Convert your Simple IRA to an employer's 401(k) plan to benefit from the employer's contribution to your plan.
  2. Image titled Convert a Simple IRA Step 11
    2
    Contact the company's employee benefits administrator for direction.
    • Depending on the size and structure of the employer, this office may be local or at some distant headquarters, but the request is common and easily handled.
  3. Image titled Convert a Simple IRA Step 12
    3
    Follow the administrator's advice on the process.
  4. Image titled Convert a Simple IRA Step 13
    4
    Receive a check made out to you and the new account administrator unless this is handled directly between the administrators.
    • With plans of any size, this process is usually handled internally.
  5. Image titled Convert a Simple IRA Step 14
    5
    Forward this to the new administrator.
  6. Image titled Convert a Simple IRA Step 15
    6
    Watch your plan statement to see the conversion deposit.
    • Remember, the employer will not match the assets converted; the match is to subsequent deposits only.

Method 4
Convert to a Roth IRA.

  1. Image titled Convert a Simple IRA Step 16
    1
    Research and shop for a Roth IRA administrator.
  2. Image titled Convert a Simple IRA Step 17
    2
    Test your eligibility.
    • The current Simple IRA plan must be at least 2 years old.
    • Be sure your modified adjusted gross income does not exceed $100,000 (married filing jointly or single filers) during the conversion year.
    • Understand that income taxes on the entire conversion amount must be paid in that tax year.
    • Accept the fact that withdrawals from the Roth IRA cannot be made for 5 years.
    • Seek a match for your risk tolerance in the investment options.
  3. Image titled Convert a Simple IRA Step 18
    3
    Receive your check from the current plan administrator, and forward it to the new plan administrator.

Tips

  • These retirement plans are heavily regulated. This means a level of comfort and security for you but, expect a lot of paperwork.
  • There is nothing fast moving in the process, nor quick money to be made. The intention here is long-term and tax conservative.
  • Although income taxes are payable on the entire conversion amount at the end of the tax year, you have the benefit of the cash flow before taxes are due if you know how to manage it.

Article Info

Categories: Retirement