Simple IRA American Funds

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captpete
Posts: 120
Joined: Mon Nov 17, 2014 1:45 pm

Simple IRA American Funds

Post by captpete » Thu Mar 01, 2018 1:28 pm

Hi All,

So my wife's employer just switched from New York Life Retirement funds to American Funds for their Simple IRA, different FA as well. The NYL Mainstay funds are terrible, they come with a front load 5.75% then yearly 1-2% I can't remember. The American Funds have a 1.39% fee yearly.

A couple of years ago I learned that I could do a transfer out of New York Life to her VG TIRA once a year after she had been invested 2 years. We changed her contribution from the expensive TD fund at Mainstay to a cheap MM so she could avoid the 5.75%fee. Then every year we transfer from NYL to VG then invest in TD funds there.

Recently we have been faced with how best to approach our IRA's. We do back-door Roths every year and that has become complicated with the Simple IRA but that's not what I am asking here.

2 questions:

1. I have seen posts regarding American Funds and am curious if we should just leave her Simple IRA alone? 1.39% is still insane. Or should we just find a cheap MM at American Funds and keep doing the transfer?

2. Conspiracy theory: Financial Adviser A sells small business on offering employees Simple IRA at industry standard rates. Charges employees 5.75% of invested assets then a 1.5% fee yearly. After 5 years Financial Adviser B comes into play and transfers all the employees out of the expensive funds at FA A and into FA B account with another 5.75% fee. The business owner could very well be getting a kick-back here or could be orchestrating the whole thing. A way to skim off peoples retirement assets, the thing they are convinced to just throw money at and never look at it.

I am not suggesting that my wife's employer is doing this in her situation because there is no Load to American Funds apparently.

Thanks

krow36
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Location: WA

Re: Simple IRA American Funds

Post by krow36 » Thu Mar 01, 2018 1:43 pm

If I were you I would continue using a MM fund for your SIMPLE IRA contributions, and I would make the asset transfers more frequently. At least every quarter if not monthly? AF has a MM fund you can use. The lower you keep the AF balance, the less fees you pay. :D

Doing an asset transfer after a year of contributions means that your DW is missing out on a year's possible growth in the Vanguard TD fund.

krow36
Posts: 1947
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Location: WA

Re: Simple IRA American Funds

Post by krow36 » Thu Mar 01, 2018 2:44 pm

captpete wrote:
Thu Mar 01, 2018 1:28 pm
2. Conspiracy theory: Financial Adviser A sells small business on offering employees Simple IRA at industry standard rates. Charges employees 5.75% of invested assets then a 1.5% fee yearly. After 5 years Financial Adviser B comes into play and transfers all the employees out of the expensive funds at FA A and into FA B account with another 5.75% fee. The business owner could very well be getting a kick-back here or could be orchestrating the whole thing. A way to skim off peoples retirement assets, the thing they are convinced to just throw money at and never look at it.

I am not suggesting that my wife's employer is doing this in her situation because there is no Load to American Funds apparently.
I think most small business owners as well as their employees don't want to bother learning the basics of investing and the importance of costs. This makes it easy for the financial industry to sell the owner on a high-fee retirement plan. The owner doesn't know there are low-fee financial institutions such as Vanguard, Fidelity, Schwab, TDA, etc. Of course a high-fee SIMPLE IRA is not ideal for the employer because it's a retirement plan they can and should contribute to themselves! I doubt the financial "advisors" will share any of their load or annual fees with the employer. They don't need to. :annoyed

captpete
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Re: Simple IRA American Funds

Post by captpete » Sat Mar 03, 2018 5:18 pm

I thought I was only permited to transfer from Simple IRA once a year? is this not so?

And thanks for your responses

krow36
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Location: WA

Re: Simple IRA American Funds

Post by krow36 » Sat Mar 03, 2018 5:37 pm

Take a look at this American Funds SIMPLE IRA Transfer Election form: https://www.americanfunds.com/advisor/p ... ee_ogi.pdf
The form allows you to do a transfer either monthly, quarterly or annually. I see that AF requires that you contribute to a MM fund if you're doing transfers, so you should do them monthly.

Spirit Rider
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Re: Simple IRA American Funds

Post by Spirit Rider » Sat Mar 03, 2018 8:09 pm

captpete wrote:
Sat Mar 03, 2018 5:18 pm
I thought I was only permitted to transfer from Simple IRA once a year? is this not so?
You can only do one IRA -> IRA indirect rollover per twelve month period.

You can do as many direct trustee -> trustee transfers as often as you want. The SIMPLE IRA custodian must allow no cost transfers at lest monthly.

captpete
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Re: Simple IRA American Funds

Post by captpete » Mon Mar 05, 2018 2:45 pm

Spirit Rider wrote:
Sat Mar 03, 2018 8:09 pm
captpete wrote:
Sat Mar 03, 2018 5:18 pm
I thought I was only permitted to transfer from Simple IRA once a year? is this not so?
You can only do one IRA -> IRA indirect rollover per twelve month period.

You can do as many direct trustee -> trustee transfers as often as you want. The SIMPLE IRA custodian must allow no cost transfers at lest monthly.
Very nice. Thanks for this.

captpete
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Re: Simple IRA American Funds

Post by captpete » Fri Nov 30, 2018 8:18 am

She does't have a "Simple IRA" with VG but only TIRA and Roth. There is no option on VG website to "Transfer" to TIRA from AF to VG.
What am I missing? I think this is why we did the once a year "Rollover" because the thought was that a "Transfer" was from Simple to Simple.

Spirit Rider
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Re: Simple IRA American Funds

Post by Spirit Rider » Fri Nov 30, 2018 9:28 am

The difference between an IRA trustee-trustee transfer and an IRA indirect rollover is who the check is made out to.

In a transfer the check is made out to the new custodian fbo the participant. In an indirect rollover the check is made out to the participant, the participant cashes/deposits the check and sends another check to the new custodian.

You generally never want to do the latter as there is a one per 12 month period restriction.

captpete
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Re: Simple IRA American Funds

Post by captpete » Fri Nov 30, 2018 10:33 am

Spirit Rider wrote:
Fri Nov 30, 2018 9:28 am
The difference between an IRA trustee-trustee transfer and an IRA indirect rollover is who the check is made out to.

In a transfer the check is made out to the new custodian fbo the participant. In an indirect rollover the check is made out to the participant, the participant cashes/deposits the check and sends another check to the new custodian.

You generally never want to do the latter as there is a one per 12 month period restriction.
Ok this helps. It sounds like I need to initiate this on the American Funds side, we usually do the rollover from the VG side. I am looking into it thanks for this information.

Pete

Spirit Rider
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Re: Simple IRA American Funds

Post by Spirit Rider » Fri Nov 30, 2018 10:48 am

SIMPLE IRA custodians reluctantly allow these rollovers, but only because the IRS requires them to do so. The majority of them require you to summit paperwork for each rollover even if done monthly. Only a distinct minority of them will agree to automatic rollovers.

Beware, sometimes due to incompetence or intentional obstruction, some staff will tell you it is not even possible. Just be persistent.

krow36
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Location: WA

Re: Simple IRA American Funds

Post by krow36 » Fri Nov 30, 2018 12:52 pm

Did you check out the American Funds SIMPLE IRA Transfer Election form I mentioned in March?
https://www.americanfunds.com/advisor/p ... ee_ogi.pdf
AF is the only SIMPLE IRA Financial Institution that provides complete, easily accessible information on the transfer to another FI I've come across. Very commendable! :D

Vanguard's Small Business section is very knowledgeable and helpful with SIMPLE IRA questions. I wouldn’t hesitate to call them if you have a question.

captpete
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Re: Simple IRA American Funds

Post by captpete » Mon Dec 03, 2018 7:14 am

krow36 wrote:
Fri Nov 30, 2018 12:52 pm
Did you check out the American Funds SIMPLE IRA Transfer Election form I mentioned in March?
https://www.americanfunds.com/advisor/p ... ee_ogi.pdf
AF is the only SIMPLE IRA Financial Institution that provides complete, easily accessible information on the transfer to another FI I've come across. Very commendable! :D

Vanguard's Small Business section is very knowledgeable and helpful with SIMPLE IRA questions. I wouldn’t hesitate to call them if you have a question.
Below is from DW's Simple IRA Custodian, it looks to me like we CANNOT move the funds to her TIRA, also this guy is saying that she will incur penalty since the funds are held less than two years with his firm... This is another reason I can't stand these salesman, from what I read on the IRS website there is no stipulation regarding new custodians for accounts, but maybe because it is a new account it could apply.

"I am assuming you are still employed with "Employer" so you need to keep it in a SIMPLE IRA funding vehicle so definitely do not transfer it to your Traditional IRA or you will have to pay a 25% penalty. I recommend talking to a tax advisor regarding that. If you are no longer working I can see the initial investment was on 3/23/2018 so per IRS regulations you need to keep it in a SIMPLE until 03/29/2020.

I've attached a form that can do monthly sweeps into another SIMPLE IRA. I haven’t done this with any of our clients really so if you have any questions or issues probably would be best to contact American Funds directly at 1-800-421-4225

Thanks!"

Any thoughts on this?

captpete
Posts: 120
Joined: Mon Nov 17, 2014 1:45 pm

Re: Simple IRA American Funds

Post by captpete » Mon Dec 03, 2018 7:22 am

krow36 wrote:
Fri Nov 30, 2018 12:52 pm
Did you check out the American Funds SIMPLE IRA Transfer Election form I mentioned in March?
https://www.americanfunds.com/advisor/p ... ee_ogi.pdf
AF is the only SIMPLE IRA Financial Institution that provides complete, easily accessible information on the transfer to another FI I've come across. Very commendable! :D

Vanguard's Small Business section is very knowledgeable and helpful with SIMPLE IRA questions. I wouldn’t hesitate to call them if you have a question.
I called VG regarding this, they said I cannot do "Transfers" to a TIRA, only "Rollovers" yearly...

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dougger5
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Re: Simple IRA American Funds

Post by dougger5 » Mon Dec 03, 2018 7:28 am

What we did in a very similar situation was to create a "frozen" SIMPLE IRA at Vanguard. This account can only receive asset transfers from another SIMPLE IRA.

Every month for the last 2 years, I've printed out a Vanguard Asset Transfer Authorization form, and mailed it in to VG (it's about the only financial thing I still use snail mail for).

We've never made any contact with American Funds about this.

If you do a search on "Frozen SIMPLE IRA," you'll get to the details of setting it up at VG.

DW's AF account has never been above about $1500.00 :mrgreen:
"I've been ionized, but I'm okay now." -Buckaroo Banzai

captpete
Posts: 120
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Re: Simple IRA American Funds

Post by captpete » Mon Dec 03, 2018 8:55 am

dougger5 wrote:
Mon Dec 03, 2018 7:28 am
What we did in a very similar situation was to create a "frozen" SIMPLE IRA at Vanguard. This account can only receive asset transfers from another SIMPLE IRA.

Every month for the last 2 years, I've printed out a Vanguard Asset Transfer Authorization form, and mailed it in to VG (it's about the only financial thing I still use snail mail for).

We've never made any contact with American Funds about this.

If you do a search on "Frozen SIMPLE IRA," you'll get to the details of setting it up at VG.

DW's AF account has never been above about $1500.00 :mrgreen:
How did you set up a "Frozen Simple IRA"? Must we have a business to do this? Vanguard did not offer to do this but we will look into it.

Thanks

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dougger5
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Re: Simple IRA American Funds

Post by dougger5 » Mon Dec 03, 2018 4:09 pm

No, you don't need a business. Just need to fill out a form to establish the account, and mail it in to VG. After the account is established, you obtain an Asset Transfer Authorization Form. This is where you tell them what your AF account is, along with how much you want to transfer, and you mail this in as frequently as once a month, along with a copy of your latest AF statement.

To AF's credit, no special signatures are required, other than the account holder's.

The first form can be found in the SIMPLE IRA Employer Kit, which you should be able to download from here-> https://personal.vanguard.com/us/litera ... _mode=true

Scroll down until you get to "SIMPLE IRA New Account Form," the last form of the kit. The first page should be 1 of 6, and these six pages should be all you need to fill out and send in. In Section 2 - Plan Information, you'll check the 3rd box down, for "New frozen account."
"I've been ionized, but I'm okay now." -Buckaroo Banzai

captpete
Posts: 120
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Re: Simple IRA American Funds

Post by captpete » Wed Dec 05, 2018 7:11 am

I called Vanguard about this, they said that I can open a Simple IRA, then my CPA called, they told her that I cannot.

Huh...

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dougger5
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Re: Simple IRA American Funds

Post by dougger5 » Wed Dec 05, 2018 7:29 am

captpete wrote:
Wed Dec 05, 2018 7:11 am
I called Vanguard about this, they said that I can open a Simple IRA, then my CPA called, they told her that I cannot.

Huh...
Huh, indeed.

I'd suggest filling out the form (again, just the six-page one at the end of the kit) and mailing it to Vanguard. If there's an issue, they'll let you know, or otherwise notify you that the account is live.

After two years, the only time I've spoken with anyone about it was an occasion where the transfer amount was incorrect (more than we had authorized - cleaned out the whole AF account). That was maybe 8 months ago, and things have been going smoothly since.
"I've been ionized, but I'm okay now." -Buckaroo Banzai

krow36
Posts: 1947
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Location: WA

Re: Simple IRA American Funds

Post by krow36 » Wed Dec 05, 2018 6:20 pm

captpete wrote:
Mon Dec 03, 2018 7:14 am
krow36 wrote:
Fri Nov 30, 2018 12:52 pm
Did you check out the American Funds SIMPLE IRA Transfer Election form I mentioned in March?
https://www.americanfunds.com/advisor/p ... ee_ogi.pdf
AF is the only SIMPLE IRA Financial Institution that provides complete, easily accessible information on the transfer to another FI I've come across. Very commendable! :D

Vanguard's Small Business section is very knowledgeable and helpful with SIMPLE IRA questions. I wouldn’t hesitate to call them if you have a question.
Below is from DW's Simple IRA Custodian, it looks to me like we CANNOT move the funds to her TIRA, also this guy is saying that she will incur penalty since the funds are held less than two years with his firm... This is another reason I can't stand these salesman, from what I read on the IRS website there is no stipulation regarding new custodians for accounts, but maybe because it is a new account it could apply.

"I am assuming you are still employed with "Employer" so you need to keep it in a SIMPLE IRA funding vehicle so definitely do not transfer it to your Traditional IRA or you will have to pay a 25% penalty. I recommend talking to a tax advisor regarding that. If you are no longer working I can see the initial investment was on 3/23/2018 so per IRS regulations you need to keep it in a SIMPLE until 03/29/2020.

I've attached a form that can do monthly sweeps into another SIMPLE IRA. I haven’t done this with any of our clients really so if you have any questions or issues probably would be best to contact American Funds directly at 1-800-421-4225

Thanks!"

Any thoughts on this?
I think that you can transfer your DW's SIMPLE IRA to a traditional IRA because she first contributed to it more than 2 years ago when she was with NYL Retirement. The AF rep was apparently unaware of this earlier SIMPLE IRA account. Did you explain it to him? I think if you talk to Vanguard about this, they should be able to talk to AF and get it straightened out. However, you will have to prove to Vanguard American Funds that the AF SIMPLE was previously the NYL Retirement SIMPLE. Hopefully you have the paperwork.

If you don't want to jump through those hoops, then go ahead with setting up the frozen SIMPLE account at Vanguard. dougger5 has given you very good directions. Her CPA is uninformed on transfers between SIMPLE IRA accounts.

edited to reflect Spirit Rider's clarification on the 1099-R
Last edited by krow36 on Wed Dec 05, 2018 8:28 pm, edited 1 time in total.

Spirit Rider
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Re: Simple IRA American Funds

Post by Spirit Rider » Wed Dec 05, 2018 7:34 pm

krow36 wrote:
Wed Dec 05, 2018 6:20 pm
captpete wrote:
Mon Dec 03, 2018 7:14 am
Below is from DW's Simple IRA Custodian, it looks to me like we CANNOT move the funds to her TIRA, also this guy is saying that she will incur penalty since the funds are held less than two years with his firm... This is another reason I can't stand these salesman, from what I read on the IRS website there is no stipulation regarding new custodians for accounts, but maybe because it is a new account it could apply.

"I am assuming you are still employed with "Employer" so you need to keep it in a SIMPLE IRA funding vehicle so definitely do not transfer it to your Traditional IRA or you will have to pay a 25% penalty. I recommend talking to a tax advisor regarding that. If you are no longer working I can see the initial investment was on 3/23/2018 so per IRS regulations you need to keep it in a SIMPLE until 03/29/2020.
I think that you can transfer your DW's SIMPLE IRA to a traditional IRA because she first contributed to it more than 2 years ago when she was with NYL Retirement. The AF rep was apparently unaware of this earlier SIMPLE IRA account. Did you explain it to him? I think if you talk to Vanguard about this, they should be able to talk to AF and get it straightened out. However, you will have to prove to Vanguard that the AF SIMPLE was previously the NYL Retirement SIMPLE. Hopefully you have the paperwork.
Here is the problem.

American Funds does not have the New York Life start date in their system. This is not unusual because it is not something that happens automatically. If you were to do a withdrawal or rollover to a non-SIMPLE IRA account (if they would even accept it), American Funds would code the 1099-R Box 7 as "S—Early distribution from a SIMPLE IRA in the first 2 years, no known exception."

Under IRS guidance: A SIMPLE IRA trustee is required to report on Form 1099R whether a distribution to a participant occurred during the 2-year period. A trustee is permitted to prepare this report on the basis of its own records with respect to the SIMPLE IRA account. A trustee may, but is not required to, take into account other adequately substantiated information regarding the date on which an individual first participated in any SIMPLE IRA Plan maintained by the individual’s employer.

@krow36 is correct you are eligible to rollover the funds to a traditional IRA. However, American Funds does not have this in their system. From above, they are not required to change this date based on your substantiated proof of an earlier first contribution date. However, my recollection is that American Funds is one of the more reasonable high cost 5305-SIMPLE IRA custodians out there. I would certainly give them a call.

captpete
Posts: 120
Joined: Mon Nov 17, 2014 1:45 pm

Re: Simple IRA American Funds

Post by captpete » Mon Dec 10, 2018 8:21 am

Ok,

This is all good information. Our CPA called VG and VG told her that a "Frozen Simple IRA" was not an option for us, therefore the monthly transfers would not be possible. I will get the start date of the original Simple IRA to AF so at least we can keep doing our yearly Rollover until we figure this Transfer thing out.

I don't know why VG would tell two different stories regarding the "Frozen Simple IRA"?

Thanks for all your help folks

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