We have a client that terminated a SIMPLE IRA Dec. 31, and started up a 401(k) Jan. 1. The SIMPLE IRA was started with the employer 4 years ago. There are a couple of people that have started deferring into the SIMPLE the last couple of years.

Does the 25% penalty apply to each individual account when they first opened their account or does it go back to when the company adopted the SIMPLE IRA.

They are looking to roll money into their new 401(k) Plan.

Thank you

According to Publication 590, the 25% penalty applies to early distributions during the 2 year period following the date on which the person first participated in the SIMPLE plan.

Hope this is of some help to you.