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.
Illini87 wrote:My biggest problem is my SIMPLE IRA through my employer which is at Edward Jones.
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.
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?
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?
Illini87 wrote:After 2 years of being in the plan, can I roll contributions over into a Roth?
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?
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.
Illini87 wrote:Can you explain conversion vs. rollover? There isn't much infomation at irs.gov on the subject.
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?
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