New Law Expands Allowable Rollovers to SIMPLE Plans

It also expands the exceptions for the 10% additional income tax on distributions for those younger than 59-1/2.

The Consolidated Appropriations Act that became law on December 18 allows a participant in a qualified retirement plan, 403(b) plan or 457 plan to roll over their distribution from that plan to a Savings Incentive Match Plan for Employees (SIMPLE) retirement account, according to various law firms’ client alerts.

Before this change, a SIMPLE account could only accept contributions under a qualified salary reduction arrangement (i.e., another SIMPLE plan). The change applies only to rollovers after the two-year period beginning on the date a participant in such an employer plan first participated in the SIMPLE plan sponsored by their employer. The employer will have to verify that the two-year period has been satisfied before permitting the rollover. 

The law also expands exceptions to the 10% additional income tax on a distribution from a qualified retirement plan to a participant younger than 59-1/2. Under current law, there is an exception if the distribution is made to an employee after separation of service if they are 55 or older, and for distributions from governmental plans for qualified public safety employees, the exception applies to those 50 or older. The budget bill expands the definition of “qualified public safety employees.”

Furthermore, the act permanently extends the ability of people 70-1/2 or older to exclude from gross income charitable distributions of $100,000 or less from individual retirement accounts (IRA).

According to a publication from Groom Law Group, the law also includes a package of church plan changes that include a provision that prevents the Internal Revenue Service (IRS) from aggregating certain church plans together for the purposes of nondiscrimination rules. It also allows church plans to decide which other church plans with which they associate. It also prevents certain grandfathered church defined benefit plans from having to meet certain requirements relating to maximum benefit accruals, and it allows defined contribution church plans to offer automatic enrollment. Finally, it streamlines the rules for merging and reorganizing church plans, and allows them to invest in 81-100 collective trusts.