SIMPLE IRA Help

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SIMPLE IRA Help

Postby shipcamein » Wed Jan 09, 2013 12:18 am

Greetings, All, First post here - I'll get right to it.

I am in a SIMPLE IRA at work - with 3% matching from my employer. This is just my 3rd year in the plan, but I intend to stay at this job a while. Problem: The "broker" for this plan has us (all) in API funds. These funds, as near as I can tell, have a heavy front load, and high (nearly 2%) expense ratio. There are just a handful of API funds to choose from, so I am not sure what I am paying the broker for (in terms of "managing" my money).

My questions:

These fees seem high to me. I am no expert, so please educate me.
If they ARE as high as they seem, why does ANYONE buy these API funds?

Some research I've done these last few days makes me think I can - in essence - have this guy put all my contributions in their "no load" money market fund, then do a "transfer" somehow to some other IRA, even self managed. Is this true? And if so:

Does my employer need to know, or just the broker?

I am not (intentionally) implying any evil intent here, but the broker is a close relative of The Big Boss, and the whole thing just makes me feel like I'm getting taken for a ride...

I'm all ears...thanks in advance!
shipcamein
 
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Re: SIMPLE IRA Help

Postby SteveKL » Wed Jan 09, 2013 4:02 am

I can't answer any of your questions about API funds, but I can tell you something about transfers from a SIMPLE to an IRA at another custodian, if you decide to go that route.

After at least two years in your plan (you say you have 3, so you're covered) you can transfer all or any portion of your SIMPLE holdings to a Rollover IRA at the custodian of your choice (Vanguard, Fidelity, etc.) Depending on the rules of your present custodian and wherever you're moving it, this can be accomplished by liquidating/selling your old holdings, then transferring the cash in a custodian-to-custodian transfer. Once th funds show up in the Rollover IRA, you can reinvest the money in low-cost index funds, ETFs, or whatever you want.

It may also be possible to do an in-kind transfer, which moves the actual holdings from one custodian to another. I recently did this by moving individual equity holdings from my Fidelity SIMPLE to a Vanguard Rollover IRA, where I sold some and retained others.

You will want to ensure that your SIMPLE account remains open and active, so it can continue to receive employee contributions and employer matches. Pick the best investment offered by the plan (under the circumstances) and put the money there. I seem to recall reading something recently that implies a once-per-year limit for transferring additional funds; I don't recall whether this is a Vanguard rule, or an IRS rule. Anyone planning this should independently confirm any limits on making additional transfers. In my case, I kept a couple of Fidelity bond funds where new contributions are being invested.

If you really are paying 2%-plus you may want to just let contributions pile up in the money market or sweep accout until you can move them out of there (if that's an option).

To answer your concern about the boss finding out: No part of the process involves your employer in any way, shape or form. The transfer is completely between you, your old SIMPLE custodian, and your new IRA custodian. Because you are leaving your SIMPLE open to receive new deposits, your employer will continue making employee and employer match deposits as always.
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Re: SIMPLE IRA Help

Postby jared » Wed Jan 09, 2013 9:04 am

If the SIMPLE plan was estabilished using a designated financial institution (DFI), then you are entitled to transfer your balance without cost or penalty to another SIMPLE IRA (or, after 2 years, to a traditional IRA). If you haven't met the 2 year period from your initial contribution, then you would need to have a SIMPLE IRA setup elsewhere in order to do this. I've read/heard somewhere that Vanguard will establish a "frozen" SIMPLE IRA for this purpose, but I can't speak from experience. If it has been more than 2 years since your initial contribution, then you could simply transfer the assets to a traditional IRA on a periodic basis.

In either case, you might consider directing all of your contributions to the lowest cost investment option (i.e. money market) to "park" the money until you can make a transfer.

If the plan was not established using a DFI, then you should be able to select your own financial institution to establish your SIMPLE IRA that will receive your contributions directly from your employer. Your plan documentation should indicate whether or not the plan was established using a DFI. Typically, Form 5305-SIMPLE is used if establishing with a DFI and Form 5304-SIMPLE is used if not using a DFI.
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