When it comes to an accumulated IRA versus a traditional IRA, the only real difference is that the money in a reinvested IRA comes from an employer-sponsored retirement plan. Otherwise, the accounts share the same tax rules for withdrawals, required minimum distributions, and conversions to Roth IRAs. If you wait to convert a simple IRA to a Roth IRA until after the two-year period, you won't have to pay the additional taxes. The amounts included in simple IRA account renewals won't count toward your annual contribution limit.
The taxable portion of the transfer will be included in your taxable income for the year. When you leave an employer with whom you had a SIMPLE IRA, you have a few options for those assets. Funds from a SIMPLE IRA can be transferred to another SIMPLE IRA, a traditional IRA, or another qualified plan, such as a 401 (k). But just like with a 401 (k), you need to make sure that you follow the proper process.
This can help you avoid taxes or penalties for transferring assets. Therefore, you can combine two IRAs by making a direct transfer from one account to another or by transferring money from one IRA to the other IRA. Next, you'll need to contact your traditional IRA plan and inform the administrator that you want to convert an IRA into your new Roth IRA. There are several types of IRAs, such as the traditional plan, Roth, counterparty employee savings incentives (SIMPLE) and the simplified employee pension (SEP).
The contributions you make to this type of IRA are taxed the moment they are made, so your investments can grow in the account tax-free. When you think that two years have passed since your first contribution to the SIMPLE IRA, confirm with the plan's depositary. Once you've met the two-year rule, it'll be easier to answer whether you can convert a simple IRA to a Roth one. The money you transfer to a reinvested IRA can later be transferred to an employer-sponsored retirement plan, if the plan allows it.
A simple individual retirement agreement is an IRA opened by an employer on behalf of its employees. To convert a simple IRA to a Roth IRA, you must first contact the administrator of the simple IRA plan to ensure that you have passed the two-year statute of limitations. As mentioned earlier, you cannot complete a simple renewal of an IRA for the first two years from the date of your initial contribution to any other retirement account, except for a new simple IRA. If you try to complete a simple IRA renewal during the two years, the IRS will count the total amount as a distribution.
If your current tax bracket is low, it may make sense to simply renew an IRA if you think your future tax bracket when you retire might be higher. When it comes to retirement savings, one of the pillars of many strategies is the individual retirement account, or IRA.