Need Refresher: Trustee-To-Trustee Transfer

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dougger5
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Need Refresher: Trustee-To-Trustee Transfer

Post by dougger5 » Tue Mar 01, 2016 9:47 pm

This is sort of a sequel to one of my first (maybe THE first) posts here, wherein I asked for some advice relative to rolling over my wife's defunct American Funds account into a VG IRA. That went through fine, but now the new management is revving back up with the retirement plan, only they are again going with American Funds, this time with a SIMPLE IRA with a 3% match. So I guess this could also be billed as another American Funds thread :D

Prior to her meeting with the FA at work today, I asked her to get them to specify whether it's a Form 5304, or a 5305. Without directly answering, the FA just said,"NO...your husband can't transfer funds out of the account!" Nice. So I'm working under the assumption that it's an '05, and that I'll have to wait 2 years before we can do any transferring.

So in preparation, I'm wondering which types of funds for her to contribute to. Like, say I pick some relatively low ER fund. After 2 years, from what I've read in other threads, I can get VG to initiate transfer(s) from AF. Does this in effect initiate AF to cash out the fund, and send the cash to VG for investment there? Just wondering how that mechanism works, and whether it would have any influence over our fund choices.

And from the wiki, it appears that this is a once-a-year thing, the trustee-to-trustee transfer, as of recently. Correct?

Interestingly, none of the documentation she was given has any ER information - just a list of funds. It does disclose the 5.75% front load for the Class A shares ( :oops: ), while also mentioning the Class C shares, with no load, but higher expenses, which are not specified. Guess I'll have to get the ERs from the interwebs. Or I guess I (er, I mean she) can try emailing the FA and ask him to provide. Maybe I should also throw in a request for an Authorized Agent form :twisted:

Another oddity - he requested my SSN, which I assume is for beneficiary purposes, but he also wants to know our net worth, and how it is allocated. Whiskey Tango Flamingo??
"I've been ionized, but I'm okay now." -Buckaroo Banzai

Alan S.
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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by Alan S. » Tue Mar 01, 2016 10:15 pm

After the 2 year period, you can take a distribution and do a 60 day rollover to another type of IRA, but you can only do one such 60 day rollover for all your IRAs in a 12 month period. These distributions are reported on a 1099R.

But trustee to trustee transfers are unlimited in number, and are not reported on a 1099R.

Information copied from Notice 98-4 regarding permitted transfers out of a SIMPLE IRA:
Q. I4: Can an amount be transferred from a SIMPLE IRA
to another IRA in a tax-free trustee-to-trustee transfer?

A. I4: During the 2-year period described in Q&A I2,
an amount in a SIMPLE IRA can be transferred to another
SIMPLE IRA in a tax-free trustee-to-trustee transfer. If,
during this 2-year period, an amount is paid from a SIMPLE
IRA directly to the trustee of an IRA that is not a SIMPLE
IRA, the payment is neither a tax-free trustee-to-trustee
transfer nor a rollover contribution; the payment is a
distribution from the SIMPLE IRA and a contribution to the
other IRA that does not qualify as a rollover contribution.

After the expiration of the 2-year period, an amount in a
SIMPLE IRA can be transferred in a tax-free
trustee-to-trustee transfer to an IRA that is not a SIMPLE
IRA.

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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by dougger5 » Tue Mar 01, 2016 10:22 pm

Thanks, Alan. Can I infer from that that if the VG fund is itself a SIMPLE IRA, that no such 2 year wait is necessary?

I ask because another thread mentioned the availability of a "frozen" SIMPLE IRA that an individual can open, just for transfer purposes.

Edit: although through casual searching on VG, I'm so far unable to pull up any such info, regarding SIMPLE IRA for an individual.
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krow36
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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by krow36 » Tue Mar 01, 2016 10:57 pm

dougger5 wrote:Thanks, Alan. Can I infer from that that if the VG fund is itself a SIMPLE IRA, that no such 2 year wait is necessary?

I ask because another thread mentioned the availability of a "frozen" SIMPLE IRA that an individual can open, just for transfer purposes.

Edit: although through casual searching on VG, I'm so far unable to pull up any such info, regarding SIMPLE IRA for an individual.
You can establish a Vanguard "frozen" SIMPLE IRA personal account as soon as the AF SIMPLE has been established. I think the IRS term is a "transfer" SIMPLE account. The VG account will only be able to receive transfers from the AF SIMPLE. To avoid AF's 5.75% load, you can contribute to an AF MM which has no load. Every month or two or so, you can use VG's SIMPLE Asset Transfer Form to move the MM contribution from AF to the VG SIMPLE account.

This avoids AF's load, and bypasses the 2 year waiting period (after the first contribution) that SIMPLE IRA's must follow before the contributions can be transferred to a tIRA.

Here's a link to VG's SIMPLE IRA Kit. Download the kit and look at the 2nd form, one to establish the employee account. Notice that you can select "frozen account". https://investor.vanguard.com/what-we-o ... Link=facet

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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by dougger5 » Wed Mar 02, 2016 6:49 am

krow36 wrote: You can establish a Vanguard "frozen" SIMPLE IRA personal account as soon as the AF SIMPLE has been established. I think the IRS term is a "transfer" SIMPLE account. The VG account will only be able to receive transfers from the AF SIMPLE. To avoid AF's 5.75% load, you can contribute to an AF MM which has no load. Every month or two or so, you can use VG's SIMPLE Asset Transfer Form to move the MM contribution from AF to the VG SIMPLE account.

This avoids AF's load, and bypasses the 2 year waiting period (after the first contribution) that SIMPLE IRA's must follow before the contributions can be transferred to a tIRA.

Here's a link to VG's SIMPLE IRA Kit. Download the kit and look at the 2nd form, one to establish the employee account. Notice that you can select "frozen account". https://investor.vanguard.com/what-we-o ... Link=facet
Excellent. Thanks!
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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by krow36 » Wed Mar 02, 2016 11:22 am

Prior to her meeting with the FA at work today, I asked her to get them to specify whether it's a Form 5304, or a 5305. Without directly answering, the FA just said,"NO...your husband can't transfer funds out of the account!" Nice. So I'm working under the assumption that it's an '05, and that I'll have to wait 2 years before we can do any transferring.

The form she fills out to sign up for the SIMPLE, where she indicates how much she wants to contribute, is the Form 5304 or 5305. If it’s the 5304, it will ask for the name and address of the provider she wants. The 5305 omits that question. In either case, the transfer out using a SIMPLE to SIMPLE trustee to trustee transfer is allowed, and does not involve your having to work with the FA. Vanguard handles the transfer from their end. You will have to tell the FA you want to contribute to the AF MM.

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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by dougger5 » Wed Mar 02, 2016 12:06 pm

krow36 wrote:Vanguard handles the transfer from their end. You will have to tell the FA you want to contribute to the AF MM.
Yep, that's the direction we're headed. The only kicker is: I have a choice of 'A' shares for the MM, or 'C' shares. The general note on the cover page states that the 'A' shares have the load, while the 'C' shares do not, but have higher expenses. So it seems the C shares is where we want to go. BUT...a footnote on the MM C-shares says that shares can only be obtained by transfer out of another C-share fund. So they might not be available for purchase by contribution. So we may be stuck with the load, part or all of which may be sucked up by the first match, and that's that.

But I told her to try specifying the C-shares MM first, and see what happens.

In any case, once we've accumulated enough for an initial purchase of a VG fund (probably just a Target 20XX for starters), I'll pull the rip cord.

Incidentally, I was informed by a buddy who used to be in the business that asking about how present net worth is allocated isn't unusual, and in fact is due diligence on the part of the FA, for proper guidance. So I am thus de-miffed on that regard :happy

Still not gonna tell him much...no need to end up on one of their internal lists for solicitation for other products.
"I've been ionized, but I'm okay now." -Buckaroo Banzai

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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by krow36 » Wed Mar 02, 2016 2:01 pm

Are you sure about AF charging a load on their MM? I helped a relative go through this process last year with AF via EJ and there was no load on the MM. There was an ER of 0.38%. Class C funds usually have a back end load--something like 1% charge to get out of the fund during the first year?

The AF website doesn't mention a load. https://www.americanfunds.com/individua ... fund/afaxx

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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by retiredjg » Wed Mar 02, 2016 2:07 pm

Before you do anything, verify the 5304 vs 5305 issue.

If it is a 5305 (designated institution) I'd do the frozen SIMPLE IRA described above by krow36. There are a few people here who have done it and I don't recall hearing of any bumps in the road once you find the place on the form to check "frozen".

A load on a money market fund sounds unusual. I'd check on that before making a decision.

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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by dougger5 » Wed Mar 02, 2016 6:07 pm

I don't absolutely know about the load for the MM account - therefore I will confirm.

It's just an inference I made seeing the MM listed as available as Class A or Class C, and the general up-front distinction of the two share types. But I'll sort it out.
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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by Alan S. » Wed Mar 02, 2016 6:33 pm

Per Notice 98-4:
If you have a 5305 (DFI) SIMPLE IRA, the custodian MUST offer a transfer "without cost or penalty" to a transfer SIMPLE IRA in the first 2 years. However, the custodian CAN charge the employer, which the employer probably deserves if the plan has high expenses, but this will not endear you to the employer.

A 5304 can also have a transfer done to another SIMPLE IRA, however there is no such requirement for the SIMPLE Custodian not to charge a cost or penalty. You can normally bank on the cost and penalty you will be assessed to be pretty punitive, so you might not want to do this before finding out what the cost or penalty will amount to.

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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by krow36 » Wed Mar 02, 2016 6:46 pm

The AF MM I linked to above, AFAXX, is a class A fund. No load is shown on their website. AF have loads on their other funds, often 5.75%. They are very straightforward about their loads. Is your FA by any chance at Edward Jones?

The gross ER of AFAXX IS 0.38% but the net ER is only 0.08%.

edit: link to the summary prospectus of AFAXX that shows that AFAXX has no load. https://www.americanfunds.com/individua ... 9_mmfp.pdf

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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by dougger5 » Wed Mar 02, 2016 7:14 pm

krow36 wrote:The AF MM I linked to above, AFAXX, is a class A fund. No load is shown on their website. AF have loads on their other funds, often 5.75%. They are very straightforward about their loads. Is your FA by any chance at Edward Jones?

The gross ER of AFAXX IS 0.38% but the net ER is only 0.08%.

edit: link to the summary prospectus of AFAXX that shows that AFAXX has no load. https://www.americanfunds.com/individua ... 9_mmfp.pdf
Indeed, I actually just got done checking the prospectus before returning here. No deferred sales charge either. So Class A it is :)

The FA is not EJ. Rather, some outfit from Vineland, NJ.
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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by dougger5 » Wed Mar 02, 2016 7:19 pm

Alan S. wrote:Per Notice 98-4:
If you have a 5305 (DFI) SIMPLE IRA, the custodian MUST offer a transfer "without cost or penalty" to a transfer SIMPLE IRA in the first 2 years. However, the custodian CAN charge the employer, which the employer probably deserves if the plan has high expenses, but this will not endear you to the employer.

A 5304 can also have a transfer done to another SIMPLE IRA, however there is no such requirement for the SIMPLE Custodian not to charge a cost or penalty. You can normally bank on the cost and penalty you will be assessed to be pretty punitive, so you might not want to do this before finding out what the cost or penalty will amount to.
But a 5304 gives the employee the option of choosing his/her preferred custodian, correct? In that case, I'd push for her to be able to use Vanguard, so transferring wouldn't be an issue.

But all indications are, with what I've stated in the thread and the general impression I have about the leadership of her office, that it's a 5305. But I'll tell her to keep her eyes peeled as she fills out the form.
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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by krow36 » Wed Mar 02, 2016 8:10 pm

Take a look at Form 5305. Page 2 has a space for the employer to name the designated financial institution
https://www.irs.gov/pub/irs-pdf/f5305sim.pdf

Take a look at Form 5304. Instead of the above, page 3 section IV is where the employee selects their preferred financial institution.
https://www.irs.gov/pub/irs-pdf/f5304sim.pdf

No matter which form is used, she should not have to fill it out on the spot. She should take it home and do some serious thinking about her desired contribution level. In fact the IRS says she should have 60 days to think about it. She may want to hand it back the FA sooner, to get things rolling.

The Form 5304 requires that the employer set up a SIMPLE account with each one of the institutions chosen by their employees, even if only one employee is using that provider. AF and Vanguard have their own software program that the employer uses to make the contributions. Many employers choose the 5305 to avoid this extra work. The FA won’t like the 5304 because he will not have access to loads or 12b1 fees.

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Re: Need Refresher: Trustee-To-Trustee Transfer

Post by retiredjg » Wed Mar 02, 2016 9:26 pm

dougger5 wrote:But a 5304 gives the employee the option of choosing his/her preferred custodian, correct? In that case, I'd push for her to be able to use Vanguard, so transferring wouldn't be an issue.
It is not always that simple although it should be. Whoever is doing the administrative work can say 'it costs us extra time and therefore money to do this" - and add on a fee to use a different custodian. Hogwash, yes, but we have seen it happen at least once.

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