You can move funds from a Savings Incentive Match Plan for Employees Individual Retirement Arrangement to a certificate of deposit. However, SIMPLE IRAs, like other retirement accounts, contain tax-deferred money so you have to contend with possible tax penalties if you cash in your SIMPLE IRA. If you want to maintain the tax-sheltered status of your funds, you may have the option of investing in a CD within your SIMPLE IRA.
Employers with up to 100 employees can sponsor SIMPLE IRA plans. These plans work similarly to 401(k)s in that your employer makes contributions to the plan and you have the ability to also contribute a portion of your salary. Investment firms or banks operate SIMPLE IRAs and provide your employer with a variety of investment options. Typically, SIMPLE IRA plan participants can choose from a number of mutual funds, but your employer's plan may include an option for investing in a certificate of deposit (CD). If such an option exists, you can instruct the plan custodian to sell the other securities in the account and to use the proceeds to fund a CD. You incur no tax consequences when you do this since the money never leaves the plan.
If you no longer work for the company that sponsors your SIMPLE IRA, you can roll the money into a new employer-sponsored SIMPLE IRA. Before doing so, you should ensure that your new employer's plan contains a CD-investment option. If your new employer does not operate a SIMPLE IRA or does not have a CD option, you can roll the money into an Individual Retirement Arrangement. You can invest IRA money in any account type that you desire, including a CD. Rolling your funds into an IRA means that you maintain the tax-deferred status of the money.
Aside from rolling your SIMPLE IRA money into a new SIMPLE IRA or traditional IRA, you can also cash in the account and move the funds to a taxable CD account. On most types of employer-sponsored retirement plans, your employer's contributions do not belong to you until up to six years after your employer invests the money in the account. Under federal tax rules, money invested by an employer in a SIMPLE IRA belongs to the plan participant from the outset. Furthermore, you can move money out of your SIMPLE IRA at any time.
If you cash in your SIMPLE IRA, then you have to pay income tax on the entire withdrawal amount. You also pay a 10 percent tax penalty if you cash in the account before you reach the age of 59 1/2. However, this premature-withdrawal penalty rises to 25 percent if you withdraw money from a SIMPLE IRA within two years of your employer creating the account. Additionally, you cannot rollover the money to a traditional IRA within two years of your employer opening the account. You do not pay a penalty if you move the money to a new employer's SIMPLE IRA. Therefore, consider the tax consequences before you move your SIMPLE IRA money to a CD outside your employer-sponsored account.