Suggestions for SIMPLE IRA at Edward Jones

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Suggestions for SIMPLE IRA at Edward Jones

Postby Illini87 » Tue May 07, 2013 11:28 am

I recently read "The Boglehead Guide to Investing," so I thought that this would be a good place to start my search for some suggestions about my retirement plan.

I have a masters degree in accounting with a minor in finance, so I am pretty well versed in investing. Like most people on this site, I have come to the conclusion that low cost index funds should make up the majority of my stock portfolio. I started a Roth at Vanguard in 2012 and maxed it out by April 15th. Because the Roth is about half of my portfolio, I put my money in the balanced index fund to give me about 20% allocation in bonds until I have enough to branch out into other funds. I have a pretty good idea of what I would like to do with my Roth as I am able to utilize other funds for diversification.

My biggest problem is my SIMPLE IRA through my employer which is at Edward Jones. I currently have about $5000 at American Funds in the New Perspective fund in order to get some international exposure. Of course, it was the broker's idea to put my money in American Funds. I am charged a 3.5% load, and he makes a nice commission. I am looking for some advice on other options that may be available to me at Edward Jones. I can't seem to get a straight answer out of the broker. What sort of commissions does Edward Jones charge for ETFs? Are ETFs the best place to try to put my money in my SIMPLE, or are there index funds available?

I will be putting another $5-6k in the SIMPLE this year and maxing out the Roth. At this point in my investing career, I'm 26, I think that the most important thing is that I am saving. Check. Now I want to try to minimize the costs for the very suboptimal choices that I have. As soon as I can, probably 5 years or so, I plan to max out my SIMPLE which currently has a limit $12,000. When I get to that point, I would like to have my investing on cruise control, minus rebalancing.

Any suggestions would be greatly appreciated. Thanks.
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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby Barry Barnitz » Tue May 07, 2013 3:21 pm

Hi:
Relevant fundamental material from the wiki Fiduciary Transfers - Bogleheads

SIMPLE IRA Transfers

Although SIMPLE IRA's comprise a small part of the employer-provided qualified plan universe, they are unique in being the sole plan that currently permits the individual employee to execute in-service trustee-to-trustee exchanges to a fiduciary of the employee's choosing. The first consideration in the selection of a SIMPLE-IRA fiduciary is to determine the type of SIMPLE IRA an employer has established, either an IRS Form 5304-SIMPLE or an IRS Form 5305-SIMPLE.

IRS Form 5304-SIMPLE: this and similar forms of a SIMPLE IRA permit each employee to choose the financial institution for receiving contributions. The employer is required to send contributions on behalf of the employee directly to the financial institution of the employee's choice. Most participants are unaware of this option, so the employee should check with the employer to see what form was used to create the plan. Obviously, if the employee has this type of SIMPLE-IRA he can choose Vanguard as the SIMPLE IRA fiduciary and have all salary deferral and employer matches invested in Vanguard Funds. Vanguard imposes a $25 account fee per fund (waived if Vanguard assets exceed $100,000) on SIMPLE IRAs. If subject to account fees, clients would be best advised to restrict fund selection in order to reduce costs. Vanguard's SIMPLE IRA imposes a five fund maximum limit.

IRS Form 5305-SIMPLE: this and similar forms of SIMPLE IRA require all contributions to be deposited initially at a designated financial institution of the employer's choosing. An employee must execute trustee-to-trustee transfers in order to invest with a fiduciary of choice. During the first two years of SIMPLE IRA participation, a transfer can only be made to another SIMPLE IRA. After two years (dated from the first contribution into the plan) transfers can be made into a Traditional IRA. Using a Traditional IRA avoids the $25 Vanguard SIMPLE IRA account fees. Trustee-to-trustee transfers to Vanguard are executed by: (1) filling out an IRA Transfer Request; (2) including a recent SIMPLE IRA account statement; and (3) having Vanguard execute the transfer. Trustee-to-Trustee transfers do not affect annual contribution limits to personal IRA accounts.

With Form 5305-SIMPLE IRAs an employee should always seek to reduce transfer costs by selecting the lowest cost fund in the employer's plan for accumulating assets for transfer. In the case of load fund SIMPLE IRA's this usually is restricted to a no-load share class of a money market fund. Since on-going salary deferrals and employer matches will continue to be deposited with the employer's fiduciary, avoiding front end loads and back end surrender charges is essential in reducing transfer costs.
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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby OverTheHill » Tue May 07, 2013 3:48 pm

There's nothing of value at EJ, other than giving them more and more of your money as fees for their services plus via the funds you purchase thought them. Run Forest, Run!
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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby Illini87 » Tue May 07, 2013 3:58 pm

I knew that EJ was a terrible place to have my money, but I did not know about these transfer options until now. Thank you very much Barry. I will have a discussion with my boss and see what type of plan we have. This is some great news and a huge relief.
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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby ThePrune » Tue May 07, 2013 9:41 pm

Illini87 wrote:My biggest problem is my SIMPLE IRA through my employer which is at Edward Jones.

Please check your paperwork to see if the SIMPLE IRA is a Form 5304 or a Form 5305 SIMPLE IRA. If your employer set up a Form 5304 SIMPLE, this makes a world of difference relative to your options. As stated in the WIKI SIMPLE IRA
The IRS allows two types of SIMPLE plans to be set up by employers: form 5304-SIMPLE and form 5305-SIMPLE plans. From the employee's perspective, there is a major difference between these plan types.

Form 5304-SIMPLE plans give each employee the freedom to select the financial institution that will act as custodian for their SIMPLE plan account. Using the Model Salary Reduction Agreement that their employer gives them at least once a year (no later than 60 days before the beginning of the next calendar year), the employee is allowed to select the financial institution that will serve as the trustee, custodian, or issuer of their SIMPLE IRA. Even if their employer has a "preferred" financial institution, the employee is nevertheless free to request that an account be set up for them at an alternative institution, such as Vanguard. If taking advantage of this option, the employee must allow their employer time to set up their new account.

In some cases form 5304-SIMPLE plans are set up to allow salary reduction and account custodian changes more often than once a year. Refer to Article II, subparagraph 2b (Timing of Salary Reduction Elections) on page 1 of the form to see if your employer has opted for more frequent changes. Choices could be semi-annually, quarterly, monthly, or daily.

So take a look right away at the SIMPLE IRA enrollment forms you were given in late 2012. If you see Form 5304 at the top, you've got options! Then check Article II, subparagraph 2b to see if the SIMPLE plan allows changes more frequently that once a year. If so, you can get the ball rolling on a SIMPLE IRA at Vanguard before next fall.

If the SIMPLE IRA is a Form 5304 and your employer gives you any grief about setting up a new account for you at Vanguard, suggest they look at the penalties imposed by the IRS for failure to abide by the terms of the SIMPLE plan! As I remember, the plan gets dissolved and all funds must be dispersed to the employees.
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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby jared » Tue May 07, 2013 10:14 pm

Here are a few previous discussions on this topic if you're interested....

viewtopic.php?f=1&t=108588
viewtopic.php?f=1&t=105158
viewtopic.php?f=10&t=97718
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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby gwrvmd » Tue May 07, 2013 10:39 pm

Barry Barnitz: Your post above on Fiduciary Transfers is one of the most important things I have learned on this Forum. Thank you!
(I know, I haven't studied the Wiki as well as I should have)..Gordon
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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby Illini87 » Wed May 08, 2013 12:46 pm

I checked with my employer and we have a form 5305-SIMPLE. I have a few additional questions.

If I start a SIMPLE at Vanguard and transfer everything into that, can I roll the Vanguard SIMPLE into a traditional IRA when the 2 year requirement is up? After 2 years of being in the plan, can I roll contributions over into a Roth? After looking at the IRS website, it is my understanding that after 2 years, you can roll the SIMPLE into almost any other qualified plan.

How often can I transfer the funds from EJ to Vanguard? Can I transfer my contributions every time that they are deposited into my EJ account? Do I have to do all of this through the mail?

Thanks,

Jon
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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby Barry Barnitz » Wed May 08, 2013 3:51 pm

Illini87 wrote:I checked with my employer and we have a form 5305-SIMPLE. I have a few additional questions.

If I start a SIMPLE at Vanguard and transfer everything into that, can I roll the Vanguard SIMPLE into a traditional IRA when the 2 year requirement is up? After 2 years of being in the plan, can I roll contributions over into a Roth? After looking at the IRS website, it is my understanding that after 2 years, you can roll the SIMPLE into almost any other qualified plan.

How often can I transfer the funds from EJ to Vanguard? Can I transfer my contributions every time that they are deposited into my EJ account? Do I have to do all of this through the mail?

Thanks,

Jon


Illini87 wrote:If I start a SIMPLE at Vanguard and transfer everything into that, can I roll the Vanguard SIMPLE into a traditional IRA when the 2 year requirement is up?


Yes, after two years you can transfer assets held in a SIMPLE IRA to a Traditional IRA. The reason for the two year holding period is that, for the first two years of participation in a SIMPLE IRA, the penalty tax for early withdrawals is 25%. The penalty tax for an early withdrawal from a Traditional IRA is 10%. After two years, the early withdrawal penalty tax for SIMPLE IRA's falls to 10%. The two year holding period eliminates the possibility of avoiding the higher penalty tax through account transfers.

Illini87 wrote:After 2 years of being in the plan, can I roll contributions over into a Roth?


No, you cannot rollover the assets to a Roth. However, you can convert the assets to a Roth IRA if you are within the income limits for conversions. You would have to report the converted assets on your tax return and pay income tax on the conversion.

Illini87 wrote:How often can I transfer the funds from EJ to Vanguard? Can I transfer my contributions every time that they are deposited into my EJ account? Do I have to do all of this through the mail?


You can execute a trustee-to-trustee transfer of SIMPLE assets as many times as you wish. However keep in mind the following:
1. The transfers must be handled by mail.
2. You must check and see if EJ applies any transfer charges on the transfers. If they have a set dollar fee for transferring accounts, limiting the number of transfers will reduce transaction costs.
3. The more transfers one makes, the greater the possibility of a paperwork snafu. Thus you might decide to accumulate salary deductions and employer contributions in a no-load money fund and execute transfers on a quarterly, semi-annual, or annual basis.


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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby Illini87 » Wed May 08, 2013 4:44 pm

Can you explain conversion vs. rollover? There isn't much infomation at irs.gov on the subject.
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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby Illini87 » Wed May 08, 2013 4:49 pm

If I start a SIMPLE at Vanguard, next year I can roll those assets into a Traditional IRA at Vanguard, correct? Then after that I can roll the contributions at EJ directly into the Traditional IRA at Vanguard?

I'm sorry for all of the questions, but I'm going to get charged $40/year to have my SIMPLE at EJ I believe, so I want to make sure that I can limit the $25 fee at Vanguard.
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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby EmergDoc » Wed May 08, 2013 6:18 pm

Edward Jones and SIMPLE IRAs. That's like a broken jaw and a tough steak. Nobody really likes either of them, but put them together and yikes..
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby Barry Barnitz » Thu May 09, 2013 3:43 am

Illini87 wrote:If I start a SIMPLE at Vanguard, next year I can roll those assets into a Traditional IRA at Vanguard, correct? Then after that I can roll the contributions at EJ directly into the Traditional IRA at Vanguard?

I'm sorry for all of the questions, but I'm going to get charged $40/year to have my SIMPLE at EJ I believe, so I want to make sure that I can limit the $25 fee at Vanguard.


The question of which account to open at Vanguard will initially depend on how long you have participated in the SIMPLE-IRA. If you have participated for over two years you would not need to open a Vanguard SIMPLE IRA but would use a Traditional IRA. If you have not participated for two years, you can only transfer to another SIMPLE IRA. Here is the link to Vanguard SIMPLE IRA transfer forms: Link. After the two year holding period it is cheaper to use a Traditional IRA rather than a Vanguard SIMPLE IRA.

Illini87 wrote:Can you explain conversion vs. rollover? There isn't much infomation at irs.gov on the subject.


You can convert SIMPLE IRA assets to a Roth IRA only after the two year holding period requirement has been met. The converted assets are subject to income taxation at your marginal income tax rate.

If you are within the income limits for contributing to a Roth IRA you might consider contributing your personal IRA contributions, using after-tax dollars, to a low cost Vanguard Roth IRA. You would be contributing pre-tax dollars and getting employer matches in the SIMPLE IRA-the account balances being trustee-to-trustee transferred to a low cost Vanguard Traditional IRA (or Vanguard SIMPLE for years one and two, moving to a Traditional IRA after year two).

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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby Illini87 » Thu May 09, 2013 1:29 pm

I'm sorry, I should have given more information. My first contribution to the SIMPLE on 4/4/12. I want to make sure that once the 2 years are up, I can transfer funds from a Vanguard SIMPLE to a Vanguard Traditional IRA, and close the SIMPLE account. I wasn't sure if I could make this transfer at the same trustee.

I maxed out my Roth IRA for 2012, and I plan to do so for the foreseeable future. Are conversions to a Roth considered part of the regular Roth contributions, or are they treated like contributions to a designated Roth account, such as a Roth 401k? For example, in 2014, could I max out my Roth (at whatever the limit is in 2014) and on top of that convert some of my SIMPLE contributions into a Roth?
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Re: Suggestions for SIMPLE IRA at Edward Jones

Postby Barry Barnitz » Thu May 09, 2013 4:34 pm

Illini87 wrote:I'm sorry, I should have given more information. My first contribution to the SIMPLE on 4/4/12. I want to make sure that once the 2 years are up, I can transfer funds from a Vanguard SIMPLE to a Vanguard Traditional IRA, and close the SIMPLE account. I wasn't sure if I could make this transfer at the same trustee.

I maxed out my Roth IRA for 2012, and I plan to do so for the foreseeable future. Are conversions to a Roth considered part of the regular Roth contributions, or are they treated like contributions to a designated Roth account, such as a Roth 401k? For example, in 2014, could I max out my Roth (at whatever the limit is in 2014) and on top of that convert some of my SIMPLE contributions into a Roth?


Hi:

I am about to go off to work, so I will provide you with a link that should help with questions you have regarding Roth conversions. See Fairmark:Roth Conversions.

regards,
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