Employer contributions to SIMPLEs are immediately vested to the employee. The employer’s contributions into SIMPLE IRAs do not have any vesting restrictions.

In other words, the contribution belongs to you immediately after it has been made, notwithstanding standard IRS rules for withdrawals from retirement accounts. SIMPLEs do have some restrictions during the first two years, however, that are known as the ‘Two Year Rule.’

Starting from the date on which your employer first made a contribution (which could be as late as October of the year following the plan year) to your SIMPLE account, a two-year countdown starts. During this two year period, any early withdrawals from the SIMPLE, though vested, will be subject to a 25% IRS early withdrawal penalty instead of the regular 10%.

Also, during this same two year period, SIMPLE assets cannot be rolled or transferred intro another retirement account unless the receiving account is also a SIMPLE IRA. After this two year period, regular IRA withdrawal rules apply and the assets can be consolidated with virtually any other form of retirement account.