SIMPLE IRAs have the same withdrawal rules as Traditional IRAs, with one notable exception. SIMPLE IRA contributions and earnings may be withdrawn at any time, but there are certain penalties that apply.

If you are under the age of 59½, you must pay a 10% penalty fee in addition to income taxes on your withdrawal. If the early withdrawal occurs within two years of receiving your first employer contribution, the 10% penalty is increased to 25%.

Since employers don’t have to make contributions until their tax filing deadline, and it could be extended to October of the year following the plan year, the “two year” rule could sometimes be nearly three years.

There are a few exceptions to the early withdrawal penalties, such as paying for health insurance while unemployed, college expenses, first-time home-buyers expenses, disability, and penalties are also waived under Rule 72(t) if early withdrawals are part of annuity payments.

If you are over age 59½, you will only have to pay income taxes on the amount you withdraw. Once you reach age 70 ½, you are required to begin withdrawing a minimum amount, known as Required Minimum Distributions.