Losing Money in a Simple IRA
Companies with less than 100 employees have the option of creating Simple individual retirement accounts to help their employees save for retirement -- and contribute some extra money on their behalf. However, if your Simple IRA is losing value, you may want to consider moving your money to another investment or retirement account.
The shortest solution to losing money in your Simple IRA is to switch how your money is invested. Typically employers will offer several different investment options that you can switch between. However, like a 401(k) plan, you're limited to the investments offered by your employer and the financial institution that partners with your employer to offer the plan. So, it's possible you may not like any of the options.
You can move your money from one Simple IRA to another Simple IRA any time you want, even the day after you open the first Simple IRA. However, if you want to transfer the money to another retirement plan, like a traditional IRA, you must wait at least 2 years after your first Simple IRA contribution to do so without penalty. If you try to transfer Simple IRA funds to another retirement account within the first 2 years, the IRS treats it as an early distribution that isn't eligible for rollover.
Your employer can't stop you from taking your money out of your Simple IRA at any time. The IRS also doesn't prohibit it, but you will be hit with an early withdrawal penalty if you take out the money before you turn 59 1/2 years old -- in addition to ordinary income taxes. If you've had the Simple IRA open for less 2 years, the early withdrawal penalty is 25 percent. After two years, it drops to 10 percent. The exceptions to the penalty are the same as for withdrawals from traditional IRAs and include health insurance if you're out of work, permanent disability, higher education expenses and up to $10,000 for a first home.
No Tax Deductions
Even if your Simple IRA loses all its value, you won't be entitled to any additional tax deductions. The only way you can claim a loss in an IRA is if you close all accounts of the same type and the sum of your distributions is less than the sum of your non-deductible contributions. But, all Simple IRA contributions are excluded from your taxable income, so you don't have any non-deductible contributions in the account.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."