Transfer from American funds to Vanguard frozen Simple

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
kristin735
Posts: 13
Joined: Wed Jun 09, 2021 3:59 pm

Transfer from American funds to Vanguard frozen Simple

Post by kristin735 »

I know this topic has been covered here but I'm getting conflicting information so I am hoping to get advice. I'm an absolute beginner at this so if my terminology in incorrect please excuse my errors.

I have a 5305 Simple IRA through my employer at American Funds (beyond 2 years) and I'm hoping to pay less in fees and open up my investing choices by transferring the account to Vanguard.

Thought I had the mechanics of the transfer worked out as the following:
1. Set up a "frozen" Simple IRA at vanguard and do trustee to trustee transfer of current funds.
2. Sell American Funds MF in my new account at Vanguard and purchase low ER Vanguard Index Funds
3. Change my contribution election at American Funds to the Money Market Fund
4. Fill out "Simple IRA Transfer Election" form for American funds to do monthly recurring transfers from American Funds account to Vanguard

I called American Funds today to confirm. I asked them about the difference between transferring into another Simple or rolling over to a traditional IRA. I wanted to know if the automatic recurring transfer would be possible in either case. They said it was only possible to do that with a Simple to Simple transfer. Otherwise the transfer request would need to be done from Vanguard's side. So from this discussion I concluded it would be easiest to set up the frozen Simple at Vanguard as suggested by others, thanked them and said goodbye.

I then called Vanguard wanting to confirm that setting up a frozen Simple was still a possibility but was told no. The rep I talked to said that the frozen Simple is only for when you've left the employer that had set up the simple but are still in the 2 year lock in period so you transfer the funds once. Not what I was expecting from what others have said here. So in my mind I revert back to the rollover to an IRA concept but he says that isn't necessarily allowed either. That it depends on the institution where my account currently is and whether they allow it and that I need to ask them.

So now I don't know what to think. It's seems that others here have done exactly what I was trying to do viewtopic.php?t=287039. Is my best option going forward to instead do a rollover to a traditional IRA https://www.irs.gov/retirement-plans/si ... fer-rules . If I go this route what are my options for frequency of rollovers and who initiates that transaction? Or do you think the rep at Vanguard gave me incorrect information and I should call them back.
sycamore
Posts: 2301
Joined: Tue May 08, 2018 12:06 pm

Re: Transfer from American funds to Vanguard frozen Simple

Post by sycamore »

Welcome to the forum!
kristin735 wrote: Wed Jun 09, 2021 4:42 pm ...
So now I don't know what to think. It's seems that others here have done exactly what I was trying to do viewtopic.php?t=287039. Is my best option going forward to instead do a rollover to a traditional IRA https://www.irs.gov/retirement-plans/si ... fer-rules . If I go this route what are my options for frequency of rollovers and who initiates that transaction? Or do you think the rep at Vanguard gave me incorrect information and I should call them back.
I don't understand what benefits there are to a frozen SIMPLE IRA, so take my opinion with a grain of salt...

Based on the IRS simple-ira-withdrawal-and-transfer-rules article:
After the 2-year period, you can make tax-free rollovers from SIMPLE IRAs to other types of non-Roth IRAs, or to an employer-sponsored retirement plan.
a traditional IRA is an eligible option for you. I'd choose that.

I don't know why Vanguard said something might not be allowed either. I do know that we transferred my wife's SIMPLE IRA to a Traditional IRA at Vanguard with no problem. Usually you would do something like (1) first set up a new Traditional IRA online at Vanguard, (2) find the appropriate form online to initiate a transfer from the SIMPLE IRA to the new IRA. If you can't do it all online, a Vanguard rollover representative should be able to help. If one of them balks, call again and try to get a different rep :)

Here's some more info on the topic: https://www.thebalance.com/how-to-do-a- ... es-2894476.

Keep in mind the IRA One-Rollover-Per-Year Rule. That document notes that "Trustee-to-trustee transfers between IRAs are not limited" so it's best to have Vanguard do the transfer directly (as opposed to American Funds sending you a check and then you depositing the check at Vanguard).
Topic Author
kristin735
Posts: 13
Joined: Wed Jun 09, 2021 3:59 pm

Re: Transfer from American funds to Vanguard frozen Simple

Post by kristin735 »

My take on why the frozen Simple IRA would be a better option is that the transfer would be automated on a monthly basis. Kind of set it and forget it.

I'm now noticing a flaw in my plan. In order to avoid the front load at American Funds I would need to change my paycheck elections to go into their Money Market Fund which currently is AFAXX. Can a even do a trustee to trustee transfer if Vanguard doesn't offer that particular fund? Would that then lock me into to doing yearly rollovers?

And if I can only do yearly rollovers is avoiding the front load even worth it if my contributions are only sitting in a Money Market for a year not earning anything.
sycamore
Posts: 2301
Joined: Tue May 08, 2018 12:06 pm

Re: Transfer from American funds to Vanguard frozen Simple

Post by sycamore »

One approach is to try to transfer your existing funds "in-kind" to the new IRA. That's reasonable if the new custodian (Vanguard in your case) supports those funds and any transactions costs are not too high. Browse to vanguard.com and look up your funds' ticker symbols. It should tell you if Vanguard will even hold those funds as well as any transaction fee.

A second approach is to liquidate/sell the funds shares at the SIMPLE IRA before transferring them. The proceeds will be transferred and invested initially in a money market settlement fund at the new IRA. Then you can but whatever new low cost fund you want. The downsides of this approach are (1) there may be sales load for selling, e.g. depends on what share class you own now, and (2) between the time you sell at the old account and buy at Vanguard, the money will be "out of the market" which may be for a few weeks. Not the end of the world but those may affect which approach you take.
LowCountryHoosier
Posts: 1
Joined: Wed Sep 02, 2020 10:21 am

Re: Transfer from American funds to Vanguard frozen Simple

Post by LowCountryHoosier »

Hi Kristin,

As someone who just went through this, I can tell you what you are trying to do is 100% possible, but requires some persistence. My husband's employer also uses American Funds for their SIMPLE IRA and after many phone calls and several forms, the balance is now automatically transferred to Vanguard every month.

His funds are held in a Money Market Fund (this is your only option if you want to avoid loads / fees) and around the 4th of each month they empty the account and send a check to Vanguard. When you are setting things up with Vanguard you have the option to direct which fund you would like the monies placed in - I chose VMFXX. The reason for this is because the Vanguard SIMPLE isn't actually tied to an employer - so you do not have the option to change allocations down the road without more confusing phone calls - it can't be done on the website. Once the check clears (usually 1 day) I move them to the fund(s) of my choosing.

I'm sorry I don't have more specifics, but I wanted to let you know it 100% can be done. I had to call Vanguard several times and got some conflicting answers, but eventually I got to someone who understood exactly what needed to be done. In my case we did end up opening a Vanguard frozen SIMPLE because the American Funds SIMPLE was a new account (less than 2 years).
Last edited by LowCountryHoosier on Thu Jun 10, 2021 11:41 am, edited 1 time in total.
Topic Author
kristin735
Posts: 13
Joined: Wed Jun 09, 2021 3:59 pm

Re: Transfer from American funds to Vanguard frozen Simple

Post by kristin735 »

LowCountry

Thank you for sharing your experience. This has me hopeful it may work for my situation.

Any out there who was able to do this process after the 2 year period?
Topic Author
kristin735
Posts: 13
Joined: Wed Jun 09, 2021 3:59 pm

Re: Transfer from American funds to Vanguard frozen Simple

Post by kristin735 »

sycamore

It looks like Vanguard has all 5 of my funds listed with a "This fund can be transferred to your Vanguard brokerage account but isn't available for purchase through FundAccess®." notice on 4 of them. It's not the initial transfer that I am mostly concerned with but the ongoing transfers out of the Simple that I am still actively contributing to.
Topic Author
kristin735
Posts: 13
Joined: Wed Jun 09, 2021 3:59 pm

Re: Transfer from American funds to Vanguard frozen Simple

Post by kristin735 »

Spoke to a different representative at Vanguard today and we processed the paperwork to open up the frozen Simple IRA. Very different response than the original rep I talked to.. Fingers crossed that the rest of the process goes smoothly.
Post Reply