In addition, employers must continue to make equivalent or non-elective contributions to their plan regardless of age. In the past, if you were over 70 and a half years old, you would lose the ability to contribute to a traditional IRA. However, under the new law, there are no age restrictions. Nor is there any age restriction for people over 70 years of age to contribute to a 401 (k) plan.
The payment is a distribution of the SIMPLE IRA and a contribution to the other IRA that does not qualify as an accumulated contribution. A SIMPLE IRA distribution over a 2-year period qualifies as an accrued contribution (and is therefore not included in gross income) only if the distribution is transferred to another SIMPLE IRA and meets the other requirements of section 408 (d) (for treatment as an accrued contribution). During the 2-year period, you can transfer an amount from one SIMPLE IRA to another SIMPLE IRA through a tax-free trustee to trustee transfer. If, during this 2-year period, a SIMPLE IRA pays an amount directly to the trustee of an IRA that is not a SIMPLE IRA, the payment does not constitute a tax-free transfer from trustee to trustee or an accrued contribution.
You can set up a SIMPLE IRA plan for this year if you meet the other requirements of the SIMPLE IRA plan and your employees don't receive any allowances or accrue benefits from another plan for this year. Generally, the same tax results apply to SIMPLE IRA distributions as to regular IRA distributions. If an eligible employee who is entitled to a contribution under a SIMPLE IRA plan does not want or is unable to establish a SIMPLE IRA at any financial institution before the date you must contribute to the employee's SIMPLE IRA, you must establish a SIMPLE IRA for the employee at the financial institution you select. You can set up a SIMPLE IRA plan that will take effect on any date between January 1 and October 1, provided that you (or any previous employer) did not previously have a SIMPLE IRA plan.
After the 2-year period has elapsed, you can transfer an amount from a SIMPLE IRA into a tax-free trustee to an IRA other than a SIMPLE IRA. A SIMPLE IRA must be created for an employee before the first date on which you must deposit a contribution to the employee's SIMPLE IRA. For the purposes of the SIMPLE IRA plan rules, the compensation of a self-employed person means the net earnings from self-employment determined in Section 1402 (a) of the Internal Revenue Code, before subtracting any contributions made to the SIMPLE IRA plan for the individual. A SIMPLE IRA account is an IRA and follows the same investment, distribution and reinvestment rules as traditional IRAs.
However, a special rule applies to the distribution received from a SIMPLE IRA during the 2-year period beginning on the date you first participated in your employer's SIMPLE IRA plan. See also IRS Publication 560, IRS Publication 590-A, IRS Publication 590-B and IRS Notice 98-4PDF for detailed information on SIMPLE IRA plans and SIMPLE IRAs. However, during the 2-year period starting when you first participated in your employer's SIMPLE IRA plan, you will only be able to transfer money to another SIMPLE IRA. Keep in mind that those who are 70 and a half years old or older and make contributions to a traditional IRA, a SIMPLE IRA, or an SEP IRA will continue to have to apply for an RMD, even if they are still working.