SIMPLE IRA in rollover IRA account

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Topic Author
Horbert
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Joined: Wed Jun 22, 2022 12:16 pm

SIMPLE IRA in rollover IRA account

Post by Horbert »

Hi, I’m a new poster. I’ve searched for an answer to this in a variety of places, but couldn’t find a definitive answer, maybe because the answer is too obvious.

Can my employer deposit my SIMPLE IRA deductions into my existing rollover IRA account?

My employer is a small business and offers a SIMPLE IRA. They use form 3504, so I can choose any financial institution as the custodian. I have an existing rollover IRA account with Fidelity that I opened several years ago to roll over an old 401k. I haven’t added any additional contributions to that account besides the initial 401k rollover. I’d like to use Fidelity for my SIMPLE IRA contributions, vs. opening an account elsewhere.

The Fidelity agent I spoke to said that I must open a new SIMPLE IRA account, which adds additional complications because Fidelity requires the employer to adopt their SIMPLE IRA plan before the employee can open an individual SIMPLE IRA account. But my employer said that all I need to do is provide them with my existing IRA account number.

Who is right? Is there something I’m missing?
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celia
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Re: SIMPLE IRA in rollover IRA account

Post by celia »

The funds in the SIMPLE IRA must be kept separate (thus the employer agreement) and there are IRS rules on the funds staying in the IRA at least 2 years before they can be rolled over to another account.

See the IRS Rollover Chart.

As with any investment, it is best to understand your account type and holding choices before you invest. I suggest reading our SIMPLE IRA wiki page before starting.


Horbert wrote: Wed Jun 22, 2022 12:23 pm But my employer said that all I need to do is provide them with my existing IRA account number.
Somewhere a word was dropped. This should say:
But my employer said that all I need to do is provide them with my existing SIMPLE IRA account number.
When you open this account, ask if you also need a separate form to enable linking from an employer account to the SIMPLE IRA. Most likely that will be part of the account-opening forms.
Last edited by celia on Wed Jun 22, 2022 2:08 pm, edited 1 time in total.
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Statistical
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Re: SIMPLE IRA in rollover IRA account

Post by Statistical »

Your employer is wrong. It is kinda hard to believe they are that wrong with other people's money unless you simply misunderstood them.

Despite the name a SIMPLE IRA and IRA aren't the same thing (and neither is SEP IRA). There are different rules, different contribution limits, different penalties for early withdrawal, etc.

[quote[SIMPLE IRA deductions into my existing rollover IRA account?[/quote]

They can not. Nor can they deposit it into any other existing IRA account rollover or not. You need to open a new SIMPLE IRA account with a financial institution of your choice and they will deposit contributions there on your behalf. From the wording it sounds like your employer has a 5304-SIMPLE plan which is one where the account can be held at the financial institution of the account holders choice.
Last edited by Statistical on Wed Jun 22, 2022 3:03 pm, edited 1 time in total.
Topic Author
Horbert
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Re: SIMPLE IRA in rollover IRA account

Post by Horbert »

Thanks everyone. It sounds like my employer is incorrect - they did say that I can just give my IRA account (not SIMPLE) information to them for depositing SIMPLE funds.

Unfortunately this means that my employer would need to adopt Fidelity’s SIMPLE IRA plan. Does anyone have recommendations for a financial institution that allows employees to open a SIMPLE IRA account without the employer needing to do anything besides depositing the salary deductions?
Topic Author
Horbert
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Re: SIMPLE IRA in rollover IRA account

Post by Horbert »

And yes, it is a 5304-SIMPLE plan. Apologies for the typo of 3504 in my first post.
Statistical
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Re: SIMPLE IRA in rollover IRA account

Post by Statistical »

I am fairly certain you can use Fidelity. Simple IRA (especially 5304) are confusing because there is the plan (and plan administrator) and there is the account (and account custodian). They can be the same entity or they can be different entities. Sometimes websites (or fidelity customer service) isn't clear on which you are looking for. Fidelity can be either one or both.

This looks like the application for opening a SIMPLE IRA account at Fidelity for an existing plan (which you have) with them acting as the account custodian. As opposed to creating a new employer Simple IRA plan (with Fidelity being the plan administrator).

https://www.fidelity.com/customer-servi ... simple-ira

Full disclosure I have no used this process on Fidelity but hopefully it gets you pointed in the right direction.
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Lee_WSP
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Re: SIMPLE IRA in rollover IRA account

Post by Lee_WSP »

While you can't directly contribute to a regular IRA, you can transfer from a simple to an individual after two years from the first deposit.
Topic Author
Horbert
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Re: SIMPLE IRA in rollover IRA account

Post by Horbert »

Statistical - thank you! I did fill out this application last week, but then got a message from Fidelity saying that the account could not be opened until my employer adopted the Fidelity SIMPLE IRA plan.
Cranberry
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Re: SIMPLE IRA in rollover IRA account

Post by Cranberry »

Has your employer already set up a plan somewhere other than Fidelity? If yes, is it a brokerage acceptable to you? If so, open an account there and transfer assets to Fidelity after two years if you feel the need to consolidate.
Topic Author
Horbert
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Re: SIMPLE IRA in rollover IRA account

Post by Horbert »

No, my employer does not have a plan elsewhere. They are using IRS form 5304, which means employees can pick where to set up an account.
Shrevetown
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Re: SIMPLE IRA in rollover IRA account

Post by Shrevetown »

Fido won’t administer “orphan” Simple IRAs. If you rollover a Simple account from another brokerage to Fido, it will be considered a tIRA. Vanguard, OTOH, does, as I rolled over my Simple to Vanguard and my employer (me, actually, as I’m.self-employed) contributes to it monthly. Dunno about the other brokerages.
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retiredjg
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Re: SIMPLE IRA in rollover IRA account

Post by retiredjg »

Vanguard will hold your SIMPLE IRA for you. I'm not sure if it must be a "frozen" SIMPLE or not.

In previous discussions, I recall that Fidelity does not offer a "frozen" SIMPLE IRA, but one or two other places (in addition to Vanguard) will allow you to hold your SIMPLE at their brokerage without adopting their plan.

Any ideas on what your co-workers use? Or maybe better not to ask. Maybe the employer is simply putting their contributions into an IRA account.
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retiredjg
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Re: SIMPLE IRA in rollover IRA account

Post by retiredjg »

Horbert, welcome to the forum. :happy

You can find older threads about "orphan" or "frozen" SIMPLE IRAs by typing the key words into the google box in the upper right corner. You are not the first person that Fidelity has told "we don't do that". This has been reported in the past as well.

There is a fair amount of confusion about this subject, even with employers.

If you look at the 5304 SIMPLE IRA form offered as a model from the IRS, it does say the money is deposited into a SIMPLE IRA account. I think putting the money into an ordinary IRA could be confusing because the custodian would confuse that with ordinary contributions and not allow contributions over the limit for the year.

https://www.irs.gov/pub/irs-pdf/f5304sim.pdf
  • "I understand that I must establish a SIMPLE IRA to receive any contributions made on my behalf under this SIMPLE IRA plan. If the information regarding my SIMPLE IRA is incomplete when I first submit my salary reduction agreement, I realize that it must be completed by the date contributions must be made under the SIMPLE IRA plan. If I fail to update my agreement to provide this information by that date, I understand that my Employer may select a financial institution for my SIMPLE IRA."
Stubbie
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Re: SIMPLE IRA in rollover IRA account

Post by Stubbie »

retiredjg wrote: Thu Jun 23, 2022 7:10 am Vanguard will hold your SIMPLE IRA for you. I'm not sure if it must be a "frozen" SIMPLE or not.

In previous discussions, I recall that Fidelity does not offer a "frozen" SIMPLE IRA, but one or two other places (in addition to Vanguard) will allow you to hold your SIMPLE at their brokerage without adopting their plan.

Any ideas on what your co-workers use? Or maybe better not to ask. Maybe the employer is simply putting their contributions into an IRA account.
I have done exactly this with TD Ameritrade. Have had no problems.
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retiredjg
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Re: SIMPLE IRA in rollover IRA account

Post by retiredjg »

Stubbie wrote: Thu Jun 23, 2022 7:35 am I have done exactly this with TD Ameritrade. Have had no problems.
One previous poster reported that Schwab does not do this "frozen" SIMPLE IRA.

Since TD Ameritrade is combining with Schwab over the next year or so, this might be something to keep an eye on and have a backup plan if needed. :?
Topic Author
Horbert
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Re: SIMPLE IRA in rollover IRA account

Post by Horbert »

Thanks, everyone!

Shreveport - I didn’t know “orphan” would be the right term to use for the account I’m looking for. Thanks!

If Vanguard allows an employee to set up an orphan SIMPLE IRA account without an employer plan, I’m fine with switching and setting up an account with them. I’ll give them a call later today.

I had been hoping to stay with Fidelity because their customer service has been great and for the ease of having everything in one place, but it’s been a big headache trying to reconcile Fidelity’s rules and my employer’s instructions. The other two financial institutions I’ve called also did not allow employees to set up orphan accounts under 5304.
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retiredjg
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Re: SIMPLE IRA in rollover IRA account

Post by retiredjg »

Vanguard calls it "frozen".

Are you willing to share the other two who don't do this?
Topic Author
Horbert
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Re: SIMPLE IRA in rollover IRA account

Post by Horbert »

retiredjg - thank you! I’m new to thinking about retirement accounts, so knowing the language will be very helpful.

What is the difference between “orphan” and “frozen?” I’ve seen a lot about frozen accounts, but I think I’m really looking for an orphan account, since I’m trying to make an initial contribution, not transfer to an additional account.
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retiredjg
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Re: SIMPLE IRA in rollover IRA account

Post by retiredjg »

As far as I know, it is just a difference in the terminology the custodians use. Vanguard might recognize "orphan" and know what you are talking about. But when I looked at their paperwork (several years ago), there was a box to check for "frozen" instead of "orphan".

Maybe all you have to say is you want to set up a SIMPLE IRA account to use with your employer's 5304 SIMPLE IRA plan. But with reps these days, you never know what they will know or not.
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