SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

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wildungar2000
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SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by wildungar2000 » Thu Nov 01, 2018 5:15 pm

My employer is offering a SIMPLE IRA using form 5305, so Oppenheimer is the DFI in my case. Oppenheimer is terrible, so obviously I am going the route of getting my money out of there and into a better institution. I have researched how I want to handle this and know that Vanguard has the frozen SIMPLE IRA wherein I can do monthly transfers from Oppenheimer to Vanguard at no cost or fee to me.

In all the threads on here, mainly it is Vanguard that is brought up when it comes to doing this, but does anyway know what Fidelity or Schwab offer? I can't seem to come up with anything from those two. Yes, I could call them up, but honestly I trust the bogleheads more than a random rep that I would get on the phone.

I currently have my tIRA and Roth at Vanguard, and my Solo 401k is at Fidelity. In choosing between Vanguard, Fidelity, and Schwab I am mainly looking at the best Expense Ratio, ease to set up, and ease of doing the monthly transfers. After two years I am happy that this process with get easier and I can simply transfer to any IRA instead. Any advice on this topic would be appreciated.

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by Spirit Rider » Thu Nov 01, 2018 5:58 pm

I don't know why this wouldn't be possible at Fidelity and Schwab. The employer must open the account under their plan. This should be no different that a 5304-SIMPLE IRA where you can have your account at any custodian. You will have to simply call and ask.

Vanguard charges $25/person/fund/year in their SIMPLE IRAs, Fidelity recently removed as administrative fees and you will have to check with Schwab.

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by wildungar2000 » Thu Nov 01, 2018 7:08 pm

Well, I just called Fidelity and they informed me that it is not possible through them. They refer to them as "orphan" SIMPLE IRAs, but they do not allow them. I had the person check with someone else to confirm, and he came back saying the same thing. As I have stated in my OP, I am skeptical of what any rep says over the phone, so hopefully someone can chime in here with first hand knowledge to the contrary. I will now see what Schwab has to say.

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by krow36 » Thu Nov 01, 2018 11:17 pm

From the Vanguard SIMPLE IRA New Account form:
Note: We charge participants a $25 annual account service fee for each mutual fund they hold in their Vanguard SIMPLE IRA. We’ll withdraw the fee directly from the fund accounts each June. This fee doesn’t apply to members of Flagship®, Voyager Select®, and Voyager Services®. (If you have a SIMPLE IRA, you must have an additional Vanguard mutual fund account relationship to qualify for these services.) https://personal.vanguard.com/pdf/s195.pdf?2210092770
A balance of 50k or more earns Voyager Service and avoids the fee. Or, after 2 years from your first contribution, you can move it all to a traditional IRA and avoid the per fund fee. :)

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by wildungar2000 » Fri Nov 02, 2018 6:46 pm

I just got off the phone with Schwab. Apparently they do not offer these type of transfer SIMPLE IRA accounts either.

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by krow36 » Fri Nov 02, 2018 7:54 pm

wildungar2000 wrote:
Fri Nov 02, 2018 6:46 pm
I just got off the phone with Schwab. Apparently they do not offer these type of transfer SIMPLE IRA accounts either.
Surprising, but that makes it easy! BH forum posters have lots of experience using the Vanguard transfer SIMPLE IRA. I think your challenge may be with broker who chose Oppenheimer. The broker using Oppy may not be all that happy about your transfers, but the transfer won't involve him/her directly. And Oppy has no choice in the matter.

So be grateful that your employer chose a SIMPLE IRA retirement plan, rather than an expensive 401k where employees have no opportunity to transfer out until after leaving the employer! :happy

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by wildungar2000 » Fri Nov 02, 2018 9:59 pm

krow36 wrote:
Fri Nov 02, 2018 7:54 pm
The broker using Oppy may not be all that happy about your transfers, but the transfer won't involve him/her directly. And Oppy has no choice in the matter.
Yeah, I do envision that he will not be happy with me, but oh well. I'm just glad the IRS has the rules in place to combat this issue.
krow36 wrote:
Fri Nov 02, 2018 7:54 pm
So be grateful that your employer chose a SIMPLE IRA retirement plan, rather than an expensive 401k where employees have no opportunity to transfer out until after leaving the employer! :happy
So today is November 2, which means my employer should have handed me the 5305-SIMPLE form. When I go into work on Monday I am going to see what is up. I believe it is technically a $50 fee per day that they are late in notifying the employees.

One more thing I'll point out is that the company is at a little over 100 workers now, but due to turnover, I would estimate only about 80-85 are eligible for the SIMPLE IRA in 2019. When 2020 rolls around, I'm wondering if we will possibly be over 100, and therefore be in a grace period last year with the SIMPLE IRA. Part of me is toying with the idea of becoming quite vocal about how crummy the current SIMPLE IRA plan is with Oppenheimer so that I can better express my opinions if and when the time comes that the company would switch over to a 401k.

Does anyone have experience in advocating for the employer to set up a good 401k from the start? Maybe I could just leave behind Vanguard brochures by my boss's door or something :wink:

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by wildungar2000 » Tue Nov 27, 2018 5:57 pm

So now that Vanguard is allowing Admiral funds in their Solo 401k accounts (see link below), I thought I would call up Vanguard and see if they will be allowing them in their Frozen SIMPLE IRA accounts too. The answer is YES! So for anyone with a Frozen SIMPLE IRA at Vanguard, I recommend you make sure and switch to Admiral. The rep also stated that there is no minimum with the funds, so he said I can do VTSAX with my first $100 or whatever.

For me personally, I am looking at opening up my Frozen SIMPLE IRA sometime this week with Vanguard. I am so glad I will be able to transfer my money to a 4 basis points fund rather than be stuck with one that has a 5.75% load and sky-high ER's.

Link to other thread: viewtopic.php?f=10&t=264551

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by krow36 » Tue Nov 27, 2018 6:34 pm

That's great the Vanguard is allowing the use of Admiral funds with no minimums, in their SIMPLE IRA accounts! :)

Thanks for the update. Did they finally hand out the Form 5305 or equivalent information? Please let us know how Oppenheimer responds to the account transfer process. I expect you will want to contribute to a MM fund in the Oppy SIMPLE account. That will avoid their loads and most of their fees.

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by wildungar2000 » Tue Nov 27, 2018 8:00 pm

No, I still have yet to be given my Form 5305 as of today, Nov 27!

I asked around at work a couple times and they said that the person administering the plan will contact me "soon." The administrator is a local Financial Advisor and does many SIMPLE IRA and 401k plans for businesses in the area. Well, I got sick of waiting so I finally got the person's contact info and emailed him earlier today. He called me a few hours later and asked if I had any questions. Yeah, I have one question...where is my 5305 form?!?!

I ended up talking to the guy over the phone for about 20 minutes. I went ahead and told him my plan to do transfers into Vanguard and he thought that I'd have to wait the 24 months. I told him I don't and he said something to the effect of....well, there may be taxes with that, and I cannot give out tax advise, so you'd be doing it at my own risk, blah blah blah. He also stated that he has dealt with 1000's of people from various SIMPLE IRAs and has never heard of anyone doing what I plan to do with the transferring.

Partway through the conversation he said he had to ask me a series of questions. He asked what my annual income was, my current net worth, what my investing experience was, etc. I then had to give him some other personal information needed for Form 5305 so that the form could be pre-filled. At the conclusion of the call, he said that the form would be mailed to me and that I'd have to sign it and send it back.

FYI, the fund I plan on using with Oppenheimer is either OMBXX or IOEXX, which are both Money Market funds. Also, in calling Vanguard today, they said I will probably not need to mess with any of the Medallion signature stuff.

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by krow36 » Thu Nov 29, 2018 1:03 pm

It’s hard to believe that the “local Financial Advisor does many SIMPLE IRA and 401k plans for businesses in the area” and has worked with 1000’s of SIMPLE accounts. He certainly seems incompetent, if not deliberately misleading. Maybe both?

If you google “Oppenheimer SIMPLE IRA plan” you’ll find their “SIMPLE IRA A Guide for Business Owners” PDF. The SIMPLE is a 5304 plan and the IRS Form 5304 SIMPLE is included in the PDF.

Google also shows a “2018 SIMPLE IRA Participant Guide” PDF. This contains several documents:
2018 SIMPLE Individual Retirement Account Disclosure Statement
Transfer Request Form For SIMPLE IRA
Account Application For SIMPLE IRA
SIMPLE Individual Retirement Account Trust Agreement

I couldn’t find any mention of either a Form 5304 or 5305 with a quick scan of these documents except in the Trust Agreement, which said it was for a 5305-S plan. It will be interesting to see what documents he sends you. Is your employer just starting this plan or has it been in existence?

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by wildungar2000 » Sun Dec 02, 2018 8:13 pm

krow36 wrote:
Thu Nov 29, 2018 1:03 pm
If you google “Oppenheimer SIMPLE IRA plan” you’ll find their “SIMPLE IRA A Guide for Business Owners” PDF. The SIMPLE is a 5304 plan and the IRS Form 5304 SIMPLE is included in the PDF.
Wow, I am a 5304-SIMPLE! It just came in the mail on Saturday. This whole time my boss and the Financial Advisor said we were a 5305. He also filled out the 7 page Oppenheimer application with the wrong birthday...he used my beneficiaries' b-day instead of my own. I really need to check over this whole thing very very carefully because this person is clearly incompetent.

So besides the Oppenheimer Application, he only included page 3 of the 5304 Form as well as a 2 page document from the Financial group that he works for. On page 3 of the 5304 he pre-filled in section IV with Oppenheimer's info. So that is where I need to put Vanguard's info, and then the employer sets up an account at Vanguard for me? I am sensing that this is going to be a fight for me to get Vanguard as my institution because no one seems to know what they are doing.

Also, now that I am a 5304, I'm thinking that I may be able to go with Fidelity instead of Vanguard, so I'll be doing research on where I actually want this set-up and if one is possibly easier for my employer.
krow36 wrote:
Thu Nov 29, 2018 1:03 pm
Is your employer just starting this plan or has it been in existence?
It has been around for a few years. I am sure I'll be the first one to be selecting my own Institution.

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by Spirit Rider » Sun Dec 02, 2018 10:35 pm

It seems quite common that Oppenheimer SIMPLE IRA plans are 5304, because maybe that is all they offer. However, you are not the first person to discover this after the fact and that no one seems to realize you have a choice of custodian. In every case I have seen, even though it is a 5304-SIMPLE plan, the custodian comes pre-filled with Oppenheimer as the custodian.

I often wonder if this isn't intentional obfuscation not to include 5304-SIMPLE page 2 and pre-fill in IV. Employee Selection of Financial Institution on page 3. From the 5304-SIMPLE Instructions, Employee Notification, pages 5 & 6.

You must notify each eligible employee prior to the employee’s 60-day election period described above that he or she can make or change salary reduction elections and select the financial institution that will serve as the trustee, custodian, or issuer of the employee’s SIMPLE IRA.

This summary description requirement may be satisfied by providing a completed copy of pages 1 and 2 of Form 5304-SIMPLE

If you fail to provide the employee notification (including the summary description) described above, you will be liable for a penalty of $50 per day until the notification is provided. If you can show that the failure was due to reasonable cause, the penalty will not be imposed.
wildungar2000 wrote:
Sun Dec 02, 2018 8:13 pm
Also, now that I am a 5304, I'm thinking that I may be able to go with Fidelity instead of Vanguard, so I'll be doing research on where I actually want this set-up and if one is possibly easier for my employer.
Now that this is not a 5305-SEP there should be no reason that you can't use Fidelity. You might want to do the leg work and obtain the forms they need to complete and determine the contribution deposit process for them.

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by krow36 » Mon Dec 03, 2018 1:43 am

Congratulations on finally getting some paperwork! It certainly seems dishonest to me that they are not providing you with all 3 pages of the Form 5304. Pre-filling in the FI on page 3 is outrageous! As Spirit Rider mentioned, calling Fidelity and finding out how to go about the paperwork is next.

I’ve talked to Vanguard about they handle a Form 5304 SIMPLE IRA 2 years ago. If someone with another designated FI wants to use Vanguard, they require that the employer complete a form to establish the employer’s SIMPLE IRA plan with Vanguard. That step is the same as if Vanguard were the designated FI. It’s like a 5305 SIMPLE with only one participant (at least to start with). Of course there’s the employee’s form to establish their SIMPLE account. The Vanguard rep said other FI’s may do it differently.

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by krow36 » Tue Dec 04, 2018 2:23 pm

wildungar2000 wrote:
Sun Dec 02, 2018 8:13 pm
I am sensing that this is going to be a fight for me to get Vanguard as my institution because no one seems to know what they are doing.

Also, now that I am a 5304, I'm thinking that I may be able to go with Fidelity instead of Vanguard, so I'll be doing research on where I actually want this set-up and if one is possibly easier for my employer.
I don’t envy you having to deal with both your employer and the broker/dealer your employer has chosen to help with their SIMPLE IRA. On your side you have an understanding of the IRS rules for SIMPLE IRAs. On the broker’s side he can talk to your boss and complain about you, and that could be a problem for you. On the other hand, it might be possible for you to talk to your boss, explain the situation, and get him on your side? You would be trying to protect him from the $50/day penalty!

Getting your employer’s Fidelity SIMPLE account set up will likely take the cooperation of your employer, signing the application form, and willingness to send your contributions to a second financial institution. It would be ideal if the boss and the personnel person was sympathetic. Other BH posters have helped by taking a check for the contributions along with the proper form and mailing it to their FI every pay period. The ideal process would be for your employer to download and use Fidelity’s app that is used to transfer contributions from the employer’s bank account to the Fidelity SIMPLE account.

Your broker is clearly causing your employer’s SIMPLE IRA to be in violation of the IRS regulations. It might be interesting to check up on the broker. FINRA is the Financial Industry Regulatory Authority and regulates brokerages. You can check this website to see if the rep has a record of complaints or discipline actions. https://brokercheck.finra.org

I believe your employer is responsible for administering this business’ SIMPLE IRA according to the IRS regulations. He may think he’s delegated that duty to the broker, but it’s the employer that will pay the fines, as you mentioned in an early post. Also see: https://www.irs.gov/retirement-plans/si ... t-followed

If your employment might be endangered by pursuing this, you might decide to drop it and consider the 3% employer contribution as covering the high Oppenheimer fees. After a few years you might change employers, or you might get the Fidelity SIMPLE account se up without endangering your employment.

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by wildungar2000 » Tue Dec 25, 2018 10:56 am

Update:

As of today, my SIMPLE IRA with Vanguard is finally open! I guess it is my Christmas present that I don't have to worry about this mess anymore. I had called up Fidelity, but according to the rep I talked to, he stated I couldn't have my SIMPLE IRA with them due to my employer not picking Fidelity as the institution. I told him that a 5304 lets me, the employee, pick any institution, but he said it couldn't be opened with Fidelity. I'm not sure that is right, but I understood the Vanguard process very well thanks to this site, so I thought it was best to pick Vanguard and be done with it.

On December 4 I handed my employer my completely filled out SIMPLE IRA application as well as his 4 page employer application that I pre-filled in as much as I could. All he had to do was section 3, which was to name an authorized individual (probably himself), and then section 6, which was to sign it. Probably 90 seconds to fill out. I even had the envelope all ready with 2 stamps on it! He put off that task for 2.5 weeks and it was really annoying that I had to bug him about this, because I really needed this put in place by the first week of January, otherwise I could have missed my first paycheck contribution. It is a relief it is finally open.
krow36 wrote:
Tue Dec 04, 2018 2:23 pm
Your broker is clearly causing your employer’s SIMPLE IRA to be in violation of the IRS regulations. It might be interesting to check up on the broker. FINRA is the Financial Industry Regulatory Authority and regulates brokerages. You can check this website to see if the rep has a record of complaints or discipline actions. https://brokercheck.finra.org
I looked up the guy and there were no complaints or disciplinary actions. I did find out he is licensed in 5 states and has 19 years of "experience" at 3 different firms. How the hell can you work that long and not know simple rules about the SIMPLE IRA. It boggles my mind.

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Re: SIMPLE IRA (5305) - Vanguard/Fidelity/Schwab for "frozen" SIMPLE IRA alternative

Post by krow36 » Tue Dec 25, 2018 1:57 pm

That’s great that you’ve got your 5304 set up with Vanguard! Thanks for posting the update. It may help others with the all-too-common problem of a miss-managed 5304 SIMPLE IRA. It’s amazing that brokers can get away with limiting the FI of a 5304 SIMPLE IRA!

I suspect that the broker you checked on is hoping that you do not make a complaint to FINRA and spoil his clean record. Maybe he’ll pass out the proper forms next October?

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