Small employers may create an individual retirement account called a Savings Incentive Match Plan for Employees as a way for employees to save for retirement. If you are contributing to a SIMPLE IRA and want to stop your contributions, you can make that arrangement with your employer’s payroll manager. If you want to cancel your SIMPLE IRA entirely and withdraw all of your funds, there are some tax rules you should be aware of before making the transaction.
You can take funds can out of a SIMPLE IRA at any time. You will need to include the amount you withdraw as taxable income when you prepare your taxes. If you are younger than 59 1/2, the funds may also be subject to a 10 percent penalty. An even bigger hit may be your timing. If you withdraw the funds within the first two years that you participated in the plan, there is an additional 25 percent tax penalty.
Who Pays You
The funds in a SIMPLE IRA are managed by a financial institution such as a bank or brokerage house. Contact that institution to make the arrangements for the withdrawal of your money.
What Tax Forms Will You Need When You File
You will use your Form 1040 to report the amount of the withdrawal. Any penalty you are required to pay will also be reported on your 1040. You may also need to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to your return.
Postponing Taxes and Avoiding Fees
If your SIMPLE IRA is older than two years old, you can postpone paying income taxes on your withdrawal by rolling over your money from the SIMPLE IRA to another IRA or other qualified plan. You can avoid the 10 percent early withdrawal penalty if you wait until you are older than 59 1/2 to withdraw the money. If you are within the SIMPLE IRA two-year penalty period, you can avoid the 25 percent tax by rolling the funds over to another SIMPLE IRA. You must keep the money in that second SIMPLE IRA until the end of the two-year period from when your original employer first made a contribution to your old account. At the end of the two years, you can roll over the funds to another IRA or other qualified plan.
Diane Stevens' professional experience started in 1970 with a computer programming position. Beginning in 1985, running her own business gave her extensive experience in personal and business finance. Her writing appears on Orbitz's Travel Blog and other websites. Stevens holds a Bachelor of Science in physics from the State University of New York at Albany.