Help with actively managed SIMPLE IRA

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
espressoz
Posts: 3
Joined: Tue Jun 04, 2024 1:41 am

Help with actively managed SIMPLE IRA

Post by espressoz »

Hi all - I had a baby a few months ago which has had me reassess my finances. I have a SIMPLE IRA at Fidelity, which I've had since I started at my small company (~10 employees) in 2019. When I enrolled, it was through a financial advisor my employer works with. Her fees are a total of 2.2% (internal + her company + her), which I now realize are significant. Further, my account has only grown about 5% since its inception, whereas my Roth IRA at Schwab saw over +10% in the same time period.

For my Roth and brokerage accounts, I use the Schwab equivalent of the three-fund portfolio. I got complacent and assumed my SIMPLE was in at least "okay" hands, but I'm realizing that was foolish. I also assumed that this was my only option, but after spiraling and researching, I see there may be a way out of this. However, my head hurts with knowing what exactly to do.

I assume my SIMPLE is 5305, but I will get confirmation. Here are some questions so far...
  • -If it's a 5305, do I open a traditional IRA at Fidelity and transfer my SIMPLE funds to it? How?
    -Or, am I able to move them to my Schwab Roth instead? I don't understand what will incur fees or a taxable event.
    -Should I continue maxing out my SIMPLE or get only the employer match? I feel like I should use the tax advantaged accounts available to me but I don't know.
    -Is it worth seeing if I can invest directly instead of going through the advisor? I don't know how these things are set up or how I may lose the employer match.
    -If I'm stuck with her, can I tell (request?) the advisor what to buy? I've just gone along so far.
    -Is it possible for an employer to establish a second SIMPLE IRA plan for those not interested in this advisor?
I know there was a workaround with the Vanguard frozen IRA, but I believe that was discontinued recently. So, I'm not sure of the actual step by step process of it all.

Background: My husband and I (both 31) make about $130k combined. I have a brokerage account but max out my Roth and SIMPLE, similarly he maxes his Roth and 401(k).

TLDR: Employer's SIMPLE IRA goes through high-fee advisor with lackluster performance, need help with what to do about it.

Thanks so much for reading. I'm so confused!
User avatar
retiredjg
Posts: 54733
Joined: Thu Jan 10, 2008 11:56 am

Re: Help with actively managed SIMPLE IRA

Post by retiredjg »

Welcome to the forum. :happy

Since it has been more than two years since your first contribution to the SIMPLE IRA, you can rollover your SIMPLE to a traditional IRA at the custodian of your choice. No "frozen" SIMPLE IRA is needed.

You do not want to move these funds to your Schwab Roth IRA because that will trigger taxes on the entire amount. Just open a traditional IRA at Schwab and roll it there.

What you can do about future contributions depends on whether your plan is 5304 or 5305 so do find this out.
Topic Author
espressoz
Posts: 3
Joined: Tue Jun 04, 2024 1:41 am

Re: Help with actively managed SIMPLE IRA

Post by espressoz »

Thank you! I've been learning a lot as a lurker.

And thank you so much for your response.

I got confirmation that it is a 5305.

I'm confused with the process of transferring assets. With a 5305, I can do this monthly into, say, a Schwab tIRA? Do I just request the advisor put everything into a money market until I transfer it? Not sure if that'd be a question for my employer. I suppose I could ask the advisor too, but that seems uncouth, ha. Do you know if there is a way to bypass the advisor altogether, thus not incurring their fees? We only have an accountant who serves as HR/financials.

According to another related post quoting the IRS Notice 98-4 Q&A J-5: "A transfer is deemed to be made without cost or penalty if no liquidation, transaction, redemption or termination fee, or any commission, load (whether front-end or back-end) or surrender charge, or similar fee or charge is imposed with respect to the balance being transferred."

Does this work (fee-wise) if the SIMPLE IRA is advisor-provided? I'm not sure if that's the case with mine, but I suspect it might be. And, I can't opt to do this now, correct? I need to wait until the renewal period at the end of the year?

Sorry, I've been reading a lot on this lately and have likely jumbled everything in my mind.

Edit: Also, knowing what you know about my SIMPLE, transferring it to a tIRA would be the best choice? Further, if my company offers a 401(k) in the future (there's been talk for years but nothing as of yet), which a SIMPLE can be rolled into, am I better off leaving my money in the SIMPLE in anticipation of that? I know just enough about investing to be dangerous, and I don't want to make the wrong move.
User avatar
retiredjg
Posts: 54733
Joined: Thu Jan 10, 2008 11:56 am

Re: Help with actively managed SIMPLE IRA

Post by retiredjg »

espressoz wrote: Tue Jun 04, 2024 10:11 am Thank you! I've been learning a lot as a lurker.

And thank you so much for your response.

I got confirmation that it is a 5305.
Sorry about the delay in responding.

I'm confused with the process of transferring assets. With a 5305, I can do this monthly into, say, a Schwab tIRA?
My understanding is that yes, you can request the SIMPLE custodian to transfer your SIMPLE to an IRA monthly. Since your first contribution to SIMPLE IRA was more than 2 years ago, the transfer can be to a plain traditional IRA. It does not need to be a "frozen SIMPLE" IRA.

Do I just request the advisor put everything into a money market until I transfer it? Not sure if that'd be a question for my employer. I suppose I could ask the advisor too, but that seems uncouth, ha. Do you know if there is a way to bypass the advisor altogether, thus not incurring their fees? We only have an accountant who serves as HR/financials.
I'm afraid you are going to have to figure this one out yourself. We don't know enough about the structure of your plan or the relationship to the advisor. There have been some discussions about Edward Jones, but we don't know where your SIMPLE IRA is located.

According to another related post quoting the IRS Notice 98-4 Q&A J-5: "A transfer is deemed to be made without cost or penalty if no liquidation, transaction, redemption or termination fee, or any commission, load (whether front-end or back-end) or surrender charge, or similar fee or charge is imposed with respect to the balance being transferred."

Does this work (fee-wise) if the SIMPLE IRA is advisor-provided?
Yes.

And, I can't opt to do this now, correct? I need to wait until the renewal period at the end of the year?
I'm not sure of the answer to this one. I don't think you have to wait until the renewal period in order to transfer out what is currently in the SIMPLE IRA. They have no right to keep your money there. However, forcing them to do a transfer on a monthly basis might require letting then know at the beginning of the renewal period. Be aware that the advisor and your employer probably have no idea this is even a possibility.

In your situation, I would do these things.

1. Read and fully understand the attached IRS 5304 salary reduction agreement. The custodian your company is using is allowed to use their own agreement, but it cannot have different rules than what the IRS agreement shows. Be sure to read all the instructions as well.

https://www.irs.gov/pub/irs-pdf/f5305sim.pdf

2. Find whatever fund in your plan you can buy without a front end or back end load and use that for all future purchases. It is likely to be a money market fund. You will probably have to work with the advisor to find this.

3. Initiate a transfer of your current SIMPLE into your own tIRA. Ordinarily, this is initiated by the receiving institution but it may be different in this case.

4. Every 3 months until the end of the year, do a transfer of whatever is in your SIMPLE to your tIRA.

5. At the renewal time, let them know that you want to transfer monthly and work out whatever is necessary to get that done.

Remember that you have a right to do this. There is no need to be timid or defensive or confrontational about it. Keep in mind that your employer and staff have very little knowledge of the rules of the SIMPLE IRA. You know more than they do at this point so some gentle education may be in order. Keep in mind that the advisor is also likely uninformed but the advisor is probably the person you are going to have to work with most to get this accomplished.



Edit: Also, knowing what you know about my SIMPLE, transferring it to a tIRA would be the best choice?
Yes.
Further, if my company offers a 401(k) in the future (there's been talk for years but nothing as of yet), which a SIMPLE can be rolled into, am I better off leaving my money in the SIMPLE in anticipation of that?
No. If the company does offer a 401k instead, you can probably roll your tIRA into the 401k at that time. Not all 401ks accept an income rollover, but most do. Or you might decide to keep it as a traditional IRA.

Please update this post as you work things out so that others may benefit from your experience in the future.
bombcar
Posts: 1519
Joined: Sun Aug 12, 2007 6:41 pm

Re: Help with actively managed SIMPLE IRA

Post by bombcar »

I’m in a similar situation with Morgan Stanley where the costs to buy any fund or ETF is high enough (and they don’t offer automatic purchase based on the paycheck deposits) that I leave it in cash until I have enough to buy into a fund.

It sounds like I could roll the whole value out to fidelity or vanguard? I guess I need to check if the company can deposit future inflows directly or if I have to keep going through MS.
User avatar
retiredjg
Posts: 54733
Joined: Thu Jan 10, 2008 11:56 am

Re: Help with actively managed SIMPLE IRA

Post by retiredjg »

bombcar wrote: Fri Jun 07, 2024 8:16 am I’m in a similar situation with Morgan Stanley where the costs to buy any fund or ETF is high enough (and they don’t offer automatic purchase based on the paycheck deposits) that I leave it in cash until I have enough to buy into a fund.

It sounds like I could roll the whole value out to fidelity or vanguard? I guess I need to check if the company can deposit future inflows directly or if I have to keep going through MS.
The answers to your questions depend on what kind of SIMPLE IRA you have (5304 or 5305) and how long you have had it.
bombcar
Posts: 1519
Joined: Sun Aug 12, 2007 6:41 pm

Re: Help with actively managed SIMPLE IRA

Post by bombcar »

retiredjg wrote: Fri Jun 07, 2024 8:30 am The answers to your questions depend on what kind of SIMPLE IRA you have (5304 or 5305) and how long you have had it.
It is a 5305 unfortunately, and it's 10 years old (still actively contributed to).
User avatar
retiredjg
Posts: 54733
Joined: Thu Jan 10, 2008 11:56 am

Re: Help with actively managed SIMPLE IRA

Post by retiredjg »

bombcar wrote: Fri Jun 07, 2024 12:47 pm
retiredjg wrote: Fri Jun 07, 2024 8:30 am The answers to your questions depend on what kind of SIMPLE IRA you have (5304 or 5305) and how long you have had it.
It is a 5305 unfortunately, and it's 10 years old (still actively contributed to).
Then my suggestion to you would be the same as to the original poster. In addition to what is posted above, you should go back to old threads and read more details (it was obvious the original poster had already done this). Search for "frozen SIMPLE" to start and follow where those threads lead you.

The short story is that you are allowed to get your money out of the bad SIMPLE and put it in a good tIRA. They cannot prevent this or charge any fees to do the transfer. For future contributions, find something (likely a money market fund) that has no load and invest in that. Regularly transfer out to your own IRA and invest as you wish.
bombcar
Posts: 1519
Joined: Sun Aug 12, 2007 6:41 pm

Re: Help with actively managed SIMPLE IRA

Post by bombcar »

So since it is two years old or more based on https://www.irs.gov/retirement-plans/si ... sfer-rules I can transfer it directly to vanguard as a traditional IRA. Now to decide if it should be a separate one or combine it with an old 401(k) rollover.

It appears I do NOT need to roll it to E*trade or someone who offered a simple IRA because it’s a 5303, and just every 13 months or so roll over again.
User avatar
retiredjg
Posts: 54733
Joined: Thu Jan 10, 2008 11:56 am

Re: Help with actively managed SIMPLE IRA

Post by retiredjg »

bombcar wrote: Fri Jun 07, 2024 5:55 pm It appears I do NOT need to roll it to E*trade or someone who offered a simple IRA because it’s a 5303, and just every 13 months or so roll over again.
The reason you do not need to roll/transfer it to someone who offers a (frozen) SIMPLE IRA is because it is more than 2 years old. It can be transferred into a plain old tIRA rather than another SIMPLE IRA.

Not sure where you got every 13 months. You can make these transfers as often as you want. What you cannot do more often than every 366 days is an IRA to IRA 60 day (indirect) rollover.
bombcar
Posts: 1519
Joined: Sun Aug 12, 2007 6:41 pm

Re: Help with actively managed SIMPLE IRA

Post by bombcar »

User avatar
retiredjg
Posts: 54733
Joined: Thu Jan 10, 2008 11:56 am

Re: Help with actively managed SIMPLE IRA

Post by retiredjg »

bombcar wrote: Sat Jun 08, 2024 1:09 pm From footnote 2 on here: https://www.irs.gov/pub/irs-tege/rollover_chart.pdf
Footnote 2 says 2 "Only one rollover in any 12-month period". Unfortunately, the link is broken so there is no way to look at the intended source.

There is definitely a "once per 365 day" limit for indirect rollovers (AKA 60 day rollovers) from IRA to IRA or Roth IRA to Roth IRA. There is no limit on trustee to trustee transfers though. And no limit on direct rollovers (although I'm not positive this term is even used for IRA to IRA transactions).

We ordinary people tend to call all of these adventures in moving money by the term "rollovers", but the IRS has a different way of looking at it. See this IRS site for details, paying attention to the use of the words "rollover" and "transfer".

https://www.irs.gov/retirement-plans/pl ... 02014%2D32).
Topic Author
espressoz
Posts: 3
Joined: Tue Jun 04, 2024 1:41 am

Re: Help with actively managed SIMPLE IRA

Post by espressoz »

I'm delayed in responding, but I just want to thank retiredjg a great deal for all the help; SIMPLE IRAs seem to be a confusing and lesser known retirement option, and retiredjg's advice has definitely given me the confidence to start the conservation with my advisor charitably. For anyone else in a similar situation, I do plan to update how it all goes - hopefully well!

I will note my advisor's firm is a regional one rather than one of the big, nationwide ones. So, what I find out may not be directly applicable to others' experiences, but I will share regardless.
Post Reply