Simple IRA Are Fully Taxable As Ordinary Income

Generally the same tax results apply to distributions from a SIMPLE IRA as to distributions from a regular IRA. That is, distributions from a SIMPLE IRA are fully taxable as ordinary income. If the distribution is a premature distribution, it may be subject to the additional tax on premature distributions. If a distribution is a premature distribution and occurs during the two-year period following the date on which the individual first participated in his or her employer's SIMPLE plan, the additional tax on premature distributions is increased from 10% to 25%.

Also, if a rollover distribution (or transfer), from a SIMPLE IRA does not satisfy the two-year rule, and is otherwise a premature distribution, the additional tax imposed because of the premature distribution is increased from 10% to 25% of the amount distributed.