SIMPLE IRA to tIRA

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Topic Author
BogBod
Posts: 39
Joined: Tue Jan 01, 2019 6:14 pm

SIMPLE IRA to tIRA

Post by BogBod » Thu Mar 14, 2019 10:34 am

This is a bit of a follow up on an earlier post. I am trying to learn quickly and become better educated. Two months ago or so, in a pause from the whirlwind of life, I realized just how poorly my Class C shares were doing in Fidelity Advisor fund set up when my partners and I started our business in 2006.

First step (already taken): My wife and I worked together and shifted where we are investing new money for retirement. She had an option for a Vanguard 403b at her work (school district) and we had options for VTSAX, VTIAX, and VTBLX (70/10/20). So I will minimally invest in my SIMPLE IRA and get the company 3% of salary, but in our new plan, my wife's salary reduction will invest the same amount I was previously investing (plus some beyond what we were doing before) in the Vanguard 403b though OMNI403b. We are aware of the $60 per year fee for the 403b.

Longer term step: I have started working with my business partners to see about changing to a SIMPLE IRA plan with Fidelity on the Retail side to get away from the Advisor side (leaving the Class C expense ratios behind and getting access to index funds).

In the meantime: My prior post had led to several responses suggesting that I take the SIMPLE IRA money (expense ratios for those funds between 1.6 and 2.0) and transfer them to a traditional IRA. Since my SIMPLE IRA is more than two years old, I am led to believe that I can make this move without penalty. I called Fidelity and they said I could open up a tIRA on the website and then call the Advisor side to initiate the transfer. (is this the right order of operations?) The Fidelity person on the phone could not access my Fidelity Advisor account and therefore said he could not tell me whether it would be considered a rollover or a transfer (which I understand only to be relevant with regards to whether I will need to have my accountant add a form to my tax return next April or not, yes?).

Is there anything I am missing here?

If I can get the money out of the Fidelity Advisor side and to the tIRA on the Fidelity retail side, I would invest the funds in a three fund portfolio of FSKAX, FTIHX, FXNAX). Or are there other recommendations? The amount is about $240K, does that make a difference?

Would you empty the SIMPLE IRA? Is there a reason or need to leave any amount in the fund?

Would I be able to transfer money out of the SIMPLE IRA multiple times in a year or only a limited number of times (until we can switch to a Retail side SIMPLE IRA)?

Thanks for any advice.

krow36
Posts: 2142
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: SIMPLE IRA to tIRA

Post by krow36 » Thu Mar 14, 2019 11:26 am

BogBod wrote:
Thu Mar 14, 2019 10:34 am
In the meantime: My prior post had led to several responses suggesting that I take the SIMPLE IRA money (expense ratios for those funds between 1.6 and 2.0) and transfer them to a traditional IRA. Since my SIMPLE IRA is more than two years old, I am led to believe that I can make this move without penalty. I called Fidelity and they said I could open up a tIRA on the website and then call the Advisor side to initiate the transfer. (is this the right order of operations?) The Fidelity person on the phone could not access my Fidelity Advisor account and therefore said he could not tell me whether it would be considered a rollover or a transfer (which I understand only to be relevant with regards to whether I will need to have my accountant add a form to my tax return next April or not, yes?). It is a transfer, and yes, open a regular retail traditional IRA at Fidelity. Ask your FA to transfer your balance to the new tIRA, leaving say $200 in the account. Your accountant doesn't have any need to know about the transfer. You will need to move your current funds to a MM fund because you don't want to keep them. This will probably cost you some back-end loads on recent contributions. You can make these transfers monthly. You can continue to make contributions, but make them to the MM fund.

Is there anything I am missing here?

If I can get the money out of the Fidelity Advisor side and to the tIRA on the Fidelity retail side, I would invest the funds in a three fund portfolio of FSKAX, FTIHX, FXNAX). Or are there other recommendations? The amount is about $240K, does that make a difference?

Would you empty the SIMPLE IRA? Is there a reason or need to leave any amount in the fund? Some posters have recommended leaving a few hundred in the account. Some posters have had the account mistakenly closed. It needs to remain open to receive your continued contributions.

Would I be able to transfer money out of the SIMPLE IRA multiple times in a year or only a limited number of times (until we can switch to a Retail side SIMPLE IRA)? Multiple times, for instance monthly.
Your previous thread has covered some of this:
viewtopic.php?f=1&t=270960&p=4345507#p4345507


Thanks for any advice.

Topic Author
BogBod
Posts: 39
Joined: Tue Jan 01, 2019 6:14 pm

Re: SIMPLE IRA to tIRA

Post by BogBod » Thu Mar 14, 2019 11:35 am

krow36 wrote:
Thu Mar 14, 2019 11:26 am
BogBod wrote:
Thu Mar 14, 2019 10:34 am


Would I be able to transfer money out of the SIMPLE IRA multiple times in a year or only a limited number of times (until we can switch to a Retail side SIMPLE IRA)? Multiple times, for instance monthly.
Your previous thread has covered some of this:
viewtopic.php?f=1&t=270960&p=4345507#p4345507


Thanks for any advice.
Thank you and I appreciate your patience with me as I reassure myself that I am processing the info from the prior posting accurately. Thanks very much.

krow36
Posts: 2142
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: SIMPLE IRA to tIRA

Post by krow36 » Thu Mar 14, 2019 12:10 pm

As for getting out of the advisor SIMPLE and into a regular retail SIMPLE, you (and your partners) should realize that the SIMPLE IRA is designed to be administered by the employer, and an “advisor” is not necessary. The IRS has an informative FAQ on the SIMPLE: https://www.irs.gov/retirement-plans/re ... -ira-plans
There’s more detail on administering the SIMPLE IRA in Pub 560: https://www.irs.gov/publications/p560#e ... nk10008873
I think many of us have to read this stuff more than once before it becomes clear, so keep at it and keep in mind all the fees you are avoiding!

Your partners might be willing to make the switch if you took on the paperwork chores? It’s nothing that onerous—passing out the Form 5305 in late Oct every year, collecting them by year’s end. You would still have the ability to call up Fidelity (not an “advisor”, just a rep in the small employer plans department) and get answers to questions. And you can walk into a Fidelity office and get help if there’s one near you.

Without the “advisor” the employees and partners would not be able to contribute to their class C advisor funds, so everyone would need educating on the advantages of the low-cost retail SIMPLE. It might take you a while?

krow36
Posts: 2142
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: SIMPLE IRA to tIRA

Post by krow36 » Thu Mar 14, 2019 12:30 pm

In your previous thread you mentioned you are in NY state. Are you aware that K-12 public school employees have access to a state-run 457 plan? This can be used in addition to her Vanguard 403b plan. It is very low-cost and 457 plans have a unique distribution rule. Upon separation from the employer, penalty-free distributions are allowed regardless of age. 403b require age 55 and traditional (and SIMPLE) IRAs require age 59 to avoid the early-withdrawal fee. 457 plans are highly valued by those considering an early retirement.
https://www.nysdcp.com/tcm/nysdcp/stati ... it.pdf?r=1
For fees and funds available: https://www.nysdcp.com/tcm/nysdcp/stati ... cy.pdf?r=1
Last edited by krow36 on Thu Mar 14, 2019 1:10 pm, edited 2 times in total.

Topic Author
BogBod
Posts: 39
Joined: Tue Jan 01, 2019 6:14 pm

Re: SIMPLE IRA to tIRA

Post by BogBod » Thu Mar 14, 2019 12:48 pm

krow36 wrote:
Thu Mar 14, 2019 12:30 pm
In your previous thread you mentioned you are in NY state. Are you aware that K-12 teachers have access to a state-run 457 plan? This can be used in addition to her Vanguard 403b plan. It is very low-cost and 457 plans have a unique distribution rule. Upon separation from the employer, penalty-free distributions are allowed regardless of age. 403b require age 55 and traditional (and SIMPLE) IRAs require age 59 to avoid the early-withdrawal fee. 457 plans are highly valued by those considering an early retirement.
https://www.nysdcp.com/tcm/nysdcp/stati ... it.pdf?r=1
For fees and funds available: https://www.nysdcp.com/tcm/nysdcp/stati ... cy.pdf?r=1
Thank you. I do not know much about 457. My wife is a school nurse, not a teacher, so I do not know if that plan still would apply for her. I will do some research with the links you provided. Thanks.

Topic Author
BogBod
Posts: 39
Joined: Tue Jan 01, 2019 6:14 pm

Re: SIMPLE IRA to tIRA

Post by BogBod » Thu Mar 14, 2019 1:04 pm

krow36 wrote:
Thu Mar 14, 2019 12:10 pm
As for getting out of the advisor SIMPLE and into a regular retail SIMPLE, you (and your partners) should realize that the SIMPLE IRA is designed to be administered by the employer, and an “advisor” is not necessary. The IRS has an informative FAQ on the SIMPLE: https://www.irs.gov/retirement-plans/re ... -ira-plans
There’s more detail on administering the SIMPLE IRA in Pub 560: https://www.irs.gov/publications/p560#e ... nk10008873
I think many of us have to read this stuff more than once before it becomes clear, so keep at it and keep in mind all the fees you are avoiding!

Your partners might be willing to make the switch if you took on the paperwork chores? It’s nothing that onerous—passing out the Form 5305 in late Oct every year, collecting them by year’s end. You would still have the ability to call up Fidelity (not an “advisor”, just a rep in the small employer plans department) and get answers to questions. And you can walk into a Fidelity office and get help if there’s one near you.

Without the “advisor” the employees and partners would not be able to contribute to their class C advisor funds, so everyone would need educating on the advantages of the low-cost retail SIMPLE. It might take you a while?
I did NOT know much of what you mention above ... until recently, and only some info at that (e.g., that we did not need an Advisor for a SIMPLE plan). There are two of us partners who would be poised to administer paperwork chores together, so we could share the responsibilities, which do indeed seem manageable. I will read the document you linked once, twice, or thrice until I understand it.

The stupidity of the whole thing is that the "advisor" has had zero contact with us in 12 years. I try not to be too angry, because unless that anger can create a time machine, I can't do much about it other than move forward now. Thanks again.

krow36
Posts: 2142
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: SIMPLE IRA to tIRA

Post by krow36 » Thu Mar 14, 2019 1:05 pm

What matters is that she is a school district employee.

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