Advice on American Century SIMPLE IRA

[FundsABlazin]

After one year at the company, my employer set up a SIMPLE IRA with American Century, and will match up to 3% of my salary, if I choose to contribute that much (I will). I set up a personal Vanguard Roth IRA in 2015, contributed the maximum, and have been consistently doing the same for 2016. After speaking with a representative at American Century, I discovered all funds are actively managed, and that no index funds are available.

Annually, I will contribute up to the amount my employer will match (3% of compensation) = $1248

Current Portfolio:
100% Vanguard Total Stock Market Index (VTSMX)
- I know I should diversify with some bonds considering I'm 25, and am open to suggestions for how I should do that via Vanguard. Currently just trying to grow.

Here are the Simple IRA Options offered at American Century:
AREOX One Choice 2055 Portfolio- this is the target date fund that matches my age. (https://www.americancentury.com/content ... html#AREOX).

Other Available American Century Funds
https://www.americancentury.com/content ... mance.html

This is the form used to sign up for American Century's SIMPLE IRA, via my company's payroll service, ADP. https://www.americancentury.com/content ... rview.html. You have to click, "Start Your Application," which directs you to the DocuSign version of the form.

Couple of general questions:
1. Does the annual federal IRA contribution limit ($5500 in my case) include all contributions made by and individual to ANY IRA? Or, could I contribute maximums to both of these (Roth & Simple)? The representative for American Century said my limit for the SIMPLE IRA is $12,500.

2. As I'm short on bonds in my portfolio at the moment, is a target fund a good idea to capture some of the bond market, though it may be small? Or would it be worth getting a bond fund? Or should I get a Vanguard bond fund, and just go with stocks with American Century?

3. Would it be worth moving money from American Century and switching to Vanguard down the road, after reaching the minimum amount of time of holding the account (2 years)?

4. All in favor of the target date fund to make this easy? The important thing is to get the company match asap, in my opinion.

Thanks so much for your help. I'm open to all suggestions and advice related to American Century, etc. Looking forward to it.

Edit: Changed the first sentence to explain that the company will match 100% of my contributions, up to 3% of my compensation.
Edit: Added the American Century sign-up form, as provided by payroll service ADP.

[ruralavalon]

Those are truly horrible expense ratios in the American Century SIMPLE IRA.

It is worth it to move money out of American Century to a Vanguard IRA of some kind as soon as practical.

Is this a 5304 or 5305 SIMPLE IRA?

What is the employer match or contribution in the SIMPLE IRA? (I don't think that "match 3% of my contributions" is accurate.)

About how much money do you expect that you might be able to contribute annually to investing (total all accounts)?

Please simply add this to your original post using the edit button, so that all of your information is in one place.

[Spirit Rider]

Couple of general questions:
1. Does the annual federal IRA contribution limit ($5500 in my case) include all contributions made by and individual to ANY IRA? Or, could I contribute maximums to both of these (Roth & Simple)? The representative for American Century said my limit for the SIMPLE IRA is $12,500.

The IRA contribution space is separate from the SIMPLE IRA. Contributions of one have no impact on the other.

2. As I'm short on bonds in my portfolio at the moment, is a target fund a good idea to capture some of the bond market, though it may be small? Or would it be worth getting a bond fund? Or should I get a Vanguard bond fund, and just go with stocks with American Century?

I'll leave this to others

3. Would it be worth moving money from American Century and switching to Vanguard down the road, after reaching the minimum amount of time of holding the account (2 years)?

The two year holding period only applies to other retirement plan types (IRA, 401k, etc...), it does not apply to another SIMPLE IRA.

If you have a 5305 SIMPLE IRA with a Designated Financial Institution (DFI), they must allow frequent cost free rollovers to another SIMPLE IRA. Vanguard will open a "frozen" (accepts rollovers, but not contributions) SIMPLE IRA. You can then rollover the contributions from the American Century SIMPLE IRA to your Vanguard SIMPLE IRA and invest in whatever your want.

If you have a 5404 SIMPLE IRA, you can open a SIMPLE IRA at Vanguard, provide the information to your employer, they will make contributions directly to Vanguard and you can invest in whatever you want.

4. All in favor of the target date fund to make this easy? The important thing is to get the company match asap, in my opinion.

Based on the information provided in answer to question 3, there is no reason to use any of American Century's high expense funds. If you have a 5305 SIMPLE IRA, use a money market and roll out to Vanguard as often as you can. If you have a 5304 SIMPLE IRA you can direct your contributions directly to Vanguard.

[FundsABlazin]

Please simply add this to your original post using the edit button, so that all of your information is in one place.

Complete above.

[ruralavalon]

How much money do you think that you might be able to contribute to investing annually (total all accounts)?

Is this a 5304 or 5305 SIMPLE IRA? Do you have a copy of the form setting up the plan?

The type of plan is very important.

Please simply add this to your original post using the edit button, so that all of your information is in one place.

"Form 5304-SIMPLE plans give each employee the freedom to select the financial institution that will act as custodian for their SIMPLE plan account."

"Form 5305-SIMPLE plans do not allow employees the freedom to select their own account custodian. Rather the employer designates the financial institution that all employees must use." Please see the wiki article, "SIMPLE IRA".

IRS form 5305 says ". . . a SIMPLE IRA balance may be rolled over or transferred on a tax-free basis to another IRA designed solely to hold funds under a SIMPLE IRA plan. In addition, an individual may roll over or transfer his or her SIMPLE IRA balance to any IRA or eligible retirement plan after a 2-year period has expired since the individual first participated in any SIMPLE IRA plan of the Employer. Any rollover or transfer must comply with the requirements of section 408." "Form 5305-SIMPLE".

[FundsABlazin]

How much money do you think that you might be able to contribute to investing annually (total all accounts)?


"Form 5304-SIMPLE plans give each employee the freedom to select the financial institution that will act as custodian for their SIMPLE plan account."

"Form 5305-SIMPLE plans do not allow employees the freedom to select their own account custodian. Rather the employer designates the financial institution that all employees must use." Please see the wiki article, "SIMPLE IRA".

I may have to give them a call regarding the 5304/5305 question. I added the form to my original post, but don't see any indication on the form about which IRA it is.

[ruralavalon]

How much money do you think that you might be able to contribute to investing annually (total all accounts)?


"Form 5304-SIMPLE plans give each employee the freedom to select the financial institution that will act as custodian for their SIMPLE plan account."

"Form 5305-SIMPLE plans do not allow employees the freedom to select their own account custodian. Rather the employer designates the financial institution that all employees must use." Please see the wiki article, "SIMPLE IRA".

I may have to give them a call regarding the 5304/5305 question. I added the form to my original post, but don't see any indication on the form about which IRA it is.

The link to your form doesn't work.

[FundsABlazin]

The link to your form doesn't work.

Edited again

[ruralavalon]

The link to your form doesn't work.

Edited again

There will be an agreement executed by your employer to set up the plan, either "Form 5304-SIMPLE" or "Form 5305-SIMPLE".

You may have to ask HR at your employer which type of SIMPLE IRA this is.

[FundsABlazin]

The link to your form doesn't work.

Edited again

There will be an agreement executed by your employer to set up the plan, either "Form 5304-SIMPLE" or "Form 5305-SIMPLE".

You may have to ask HR at your employer which type of SIMPLE IRA this is.

Had a conversation with the payroll service and the IRA provider, American Century, and they are the only dedicated financial institution, so it looks like I'll need to set up my own plan with Vanguard, and constantly transfer funds between American Century and Vanguard. Is there any advantage/disadvantage to the frequency I transfer from AC to VAN?

Wondering if I could convince my employer to invest in a better SIMPLE IRA plan...

[Spirit Rider]

The frequency is first dependent on American Century, but they must at least allow monthly transfers. Ideally it would be best to transfer coincident with each pay period.

However, IRS regulations do not require them to have "set and forget it" electronic transfers. Many expensive plans make this as difficult/slow as they can. I have seen where they require the mailing in of each specific transfer request and then after a suitable delay they mail a check to your selected other SIMPLE IRA provider. So you should also find out their SIMPLE IRA -> SIMPLE IRA transfer rules.

Then it is up to you to evaluate the hassle vs. time out of market balance.

[ruralavalon]

If automatic transfers can be set up, then do transfers every pay period.

[FundsABlazin]

If automatic transfers can be set up, then do transfers every pay period.

This guy did something similar, http://aatheory.blogspot.com/2007/02/si ... nsfer.html, and posted about it here, viewtopic.php?t=5785#p71502.

Only difference is Barry Barnitz waited the 2 years in order to transfer to a traditional IRA, rather than constantly transfer to a Vanguard SIMPLE.

As for selecting a fund with American Century, what I've been reading suggests Money Market funds to avoid high expense ratios from the initial DFI (designated financial institution, or American Century), and any load fees, etc.

American Century's sole Money Market option, "Prime Money Market Fund (BPRXX - Investor Class)" has an expense ratio of, 0.58%. Is this the best way to hold onto my money+company match if I plan to make regular, frequent transfers? Then once I have transferred to a Vanguard SIMPLE, I can invest in anything I want?

[ruralavalon]

You don't need to limit your SIMPLE IRA contributions to 3%, you can contribute up to $12.5k per year.

American Century's sole Money Market option, "Prime Money Market Fund (BPRXX - Investor Class)" has an expense ratio of, 0.58%. Is this the best way to hold onto my money+company match if I plan to make regular, frequent transfers? Then once I have transferred to a Vanguard SIMPLE, I can invest in anything I want?

Yes, the money American Century market fund is a good choice if you are making regular frequent transfers to a Vanguard SIMPLE IRA.

Once transferred from American Century to a Vanguard SIMPLE IRA you can invest in anything you wish.

You can still contribute to your Vanguard Roth IRA, up to $5.5k per year.