This study examined the stability of reading difficulties (RD) from grades 2 to 6 and focused on the effects of measurement error and cut-off selection in the identification of RD and its stability with the use of simulations. It addressed methodological limitations of prior studies by (a) applying a model-based simulation analysis to examine the effects of measurement error and cut-offs in the identification of RD, (b) analyzing a non-English and larger sample, and (c) examining RD in both reading fluency and reading comprehension. Reading fluency and reading comprehension of 1,432 Finnish-speaking children were assessed in grades 2 and 6. In addition to the use of single cut-off points on observed data, we used a simulation approach based on an estimated structural equation model (SEM) in order to examine the effect of measurement error on RD identification stability. We also examined the effect of single cut-offs by using a simulation-based buffer zone. Our results showed that measurement error affects the identification of RD over time. The use of a simulation-based buffer zone could control both the effects of measurement error and the arbitrariness of single cut-offs and lead to more accurate classification into RD groups, especially for those with scores close to the cut-offs. However, even after controlling for measurement error and using buffer zones, RD was not stable over time for all children, but both resolving and late-emerging groups existed. The findings suggest that reading development needs to be followed closely beyond the early grades and that reading instruction should be planned according to individual needs at specific time points. There is a clear need for further consideration of the mechanisms underlying the stability and instability of RD.