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SIMPLE IRA fund company transfer possible?

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  • litovskyassetmanagement
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    My memory is a bit fuzzy, but I had a similar situation three years ago with the practice my wife joined.  Simple-IRA working with a Edward Jones selling ‘load’ funds (I’ll be polite).  In looking at the Employers establishment of the Simple IRA, (here is where the fuzzy memory is) and the IRS website, there are a couple of way the employer can establish a Simple IRA.  a. essentially it the employers Simple IRA and you can only go to the stated Trustee (Edward Jones in this case) or b. a Simple IRA in which the employee can designate a trustee to the employers Simple IRA.

    Because of the Simple IRA documentation established by the employer (prior to our arrival), I was able to select b. and have used Vanguard for her Simple IRA, whereas other employees (including the owner) use Edward Jones as Trustee.  As a result, I didn’t need to follow any of the 2 year wait rules to get the money invested appropriately (imo at least).  Haven’t heard from Edward Jones since.
    Click to expand...


    Ok, here it is from an actual plan document:

    "A. Notification of Eligibility
    –The Employer shall notify each Employee

    who becomes a Participant of his or her status as a Participant in the

    Plan and of his or her duty to establish a SIMPLE IRA to which Employer

    Contributions may be made. Unless the Employer elects to make all Plan

    contributions to a Designated Financial Institution, the Employer must

    permit each Participant to select the financial institution that will serve as

    trustee, custodian or issuer of the SIMPLE IRA to which the Employer will

    make all contributions on behalf of such Participant."


    So you are 100% right, they can't stop you unless it is hard-coded that all contributions are made into an Edward Jones account.


    So basically the only other alternative is to lobby the employer to allow you to open an account wherever you want.  And this would be a good idea to begin with - just a simple change to the plan document will enable you to open an IRA elsewhere.

    Leave a comment:


  • ajm184
    replied
    My memory is a bit fuzzy, but I had a similar situation three years ago with the practice my wife joined.  Simple-IRA working with a Edward Jones selling 'load' funds (I'll be polite).  In looking at the Employers establishment of the Simple IRA, (here is where the fuzzy memory is) and the IRS website, there are a couple of way the employer can establish a Simple IRA.  a. essentially it the employers Simple IRA and you can only go to the stated Trustee (Edward Jones in this case) or b. a Simple IRA in which the employee can designate a trustee to the employers Simple IRA.

    Because of the Simple IRA documentation established by the employer (prior to our arrival), I was able to select b. and have used Vanguard for her Simple IRA, whereas other employees (including the owner) use Edward Jones as Trustee.  As a result, I didn't need to follow any of the 2 year wait rules to get the money invested appropriately (imo at least).  Haven't heard from Edward Jones since.

    Leave a comment:


  • litovskyassetmanagement
    replied




    I am currently working as a dentist in a private practice and graduated this past May. Recently I was approached by someone trying to sell me a whole life policy for the cash value option but after further reading on the website and countless other sources, I steered clear.

    Starting in January I have the opportunity to contribute to my employer’s SIMPLE IRA in which he offers a 3% match. Unfortunately the plan is through the same financial firm mentioned above and they utilize American Funds which includes numerous fees. After further navigating the WCI site, I know that Vanguard is a favorite and I am also currently looking to open a Roth IRA through Vanguard while I can still contribute and will utilize the backdoor option in the next year or so. I know the SIMPLE IRA will need to be emptied prior to executing the backdoor conversion when the time comes.

    My question is whether I will have trouble/am I able to convert the SIMPLE IRA through American Funds to Vanguard since they are different fund companies? Ideally I know I could convert the SIMPLE IRA to a Roth IRA and pay the taxes since the amount won’t be substantial at this point, but again, I am unsure of whether transferring fund companies is possible and if so, at what expense?

    Any insight on how I could handle this situation and ideally keep my accounts limited to Vanguard would be greatly appreciated. Thanks!
    Click to expand...


    Yes, I believe you can open your own SIMPLE IRA account at Vanguard and make contributions there.  There is no requirement that your SIMPLE IRA account has to be open at American funds.  However, just check with the company that is running the SIMPLE IRA first.  I don't believe they can stop you.

    You might just make non-deductible contributions in the meanwhile into your Traditional IRA, and convert those later on when you switch jobs for example.

    Leave a comment:


  • jake91dds
    replied
    Thank you for all the insight so far!

    I do remember reading about having to wait the 2 years now that you mention it.

    So from what I am gathering is that I am able to transfer my SIMPLE IRA plan monthly contributions (which will start in Jan 2018) through my employer's plan which will be through American Funds to a Vanguard (also a SIMPLE IRA?) using the 5305 form, during my initial account set up? Or do I have to wait the 2 years before the funds can be transferred in any manner?

    Again, I am trying to avoid the fees associated with the American Funds and would like to keep everything associated with Vanguard both now and in the future when I am eligible to transfer funds from a Vanguard IRA to the backdoor Roth IRA that I plan to set up anytime now (I am still eligible at this time).

    Thanks!

    Leave a comment:


  • jfoxcpacfp
    replied


    Finally, you are not going to be able to do a Backdoor Roth for at least two years. Even then, you would need a non-IRA employer retirement plan that you could rollover all pre-tax (traditional, SEP, SIMPLE) IRA assets before 12/31 of each year.
    Click to expand...


    A couple of thoughts -

    • You will still be able to contribute to a nondeductible IRA while you have $$ in the SIMPLE plan. What you don't want to do is to convert until you have passed the 2-year mark for the SIMPLE and convert to a Roth IRA, if that is what you want to do.

    • What spiritrider means by the "non-IRA employer retirement plan is that, if you choose not to convert your SIMPLE to a Roth IRA annually, you'll need some type of plan such as a solo-401k opened with earnings from a side gig. That would allow you to keep all of your retirement contributions pre-tax.


    So, consider completing step 1 of the backdoor Roth maneuver annually, as you lose that opportunity if you don't take advantage each year. Then convert only when you have a plan to empty the SIMPLE annually or you've changed jobs. Explaining Backdoor Roth IRAs may help.

    btw, the 2-year rule remains in place even if you change jobs. iow, should you start SIMPLE participation and change employers a year later, you still must wait a year before you can roll over your SIMPLE to any plan except another SIMPLE or you'll pay the 25% penalty + taxes on the distribution.

    Leave a comment:


  • spiritrider
    replied
    There are two main SIMPLE IRA issues.

    • You can not rollover SIMPLE IRA assets to any other plan except for another SIMPLE IRA for two years after the date of the first SIMPLE IRA contribution. The rollover would be invalid and must be distributed, subject to ordinary income taxes and a 25% penalty.

    • If your employer has a Form 5305-SIMPLE for Use With a Designated Financial Institution (DFI), you will have an option to rollover all contributions to another retirement plan subject to the restriction above. These rollovers must be allowed by the DFI at least monthly at no cost or fees to you:

      • You will need to select this option during the notice/enrollment period ending 12/31. You might get resistance, but you are allowed to make any changes up until 12/31. Do not delay or take no for an answer.

      • The DFI must allow you to select a no-fee deposit option, usually a Money Market Fund.

      • You can open a rollover only SIMPLE IRA account. At Vanguard these are called "Frozen" SIMPLE IRA accounts.

      • Your contributions are directed to the no cost option and you can request a rollover to the Vanguard SIMPLE IRA at least monthly.




    Note: You should have received all of this information in your SIMPLE IRA notice package. I almost guarantee that with American Funds as the option, your employer has a 5305-SIMPLE IRA plan.

    Finally, you are not going to be able to do a Backdoor Roth for at least two years. Even then, you would need a non-IRA employer retirement plan that you could rollover all pre-tax (traditional, SEP, SIMPLE) IRA assets before 12/31 of each year.

    Leave a comment:


  • jake91dds
    started a topic SIMPLE IRA fund company transfer possible?

    SIMPLE IRA fund company transfer possible?

    I am currently working as a dentist in a private practice and graduated this past May. Recently I was approached by someone trying to sell me a whole life policy for the cash value option but after further reading on the website and countless other sources, I steered clear.

    Starting in January I have the opportunity to contribute to my employer’s SIMPLE IRA in which he offers a 3% match. Unfortunately the plan is through the same financial firm mentioned above and they utilize American Funds which includes numerous fees. After further navigating the WCI site, I know that Vanguard is a favorite and I am also currently looking to open a Roth IRA through Vanguard while I can still contribute and will utilize the backdoor option in the next year or so. I know the SIMPLE IRA will need to be emptied prior to executing the backdoor conversion when the time comes.

    My question is whether I will have trouble/am I able to convert the SIMPLE IRA through American Funds to Vanguard since they are different fund companies? Ideally I know I could convert the SIMPLE IRA to a Roth IRA and pay the taxes since the amount won’t be substantial at this point, but again, I am unsure of whether transferring fund companies is possible and if so, at what expense?

    Any insight on how I could handle this situation and ideally keep my accounts limited to Vanguard would be greatly appreciated. Thanks!
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