Simple IRA Rollover

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Simple IRA Rollover

Post by RetiringSomeday » Tue May 17, 2011 4:50 pm

We have an simple IRA plan at my business through Ameriprise. I own the business with a partner so the decisions are not mine alone as far as switching from Ameriprise with the entire plan for him and I and all the employees. It may take some convincing.

I plan to investigate this and present it to him but in the interim I wanted to move my money out anyway but not close my simple - just take out what is currently there.

I have had several phone conversations with Vanguard and as I see it I have 3 options.

A. Change over to a 5304 type plan - not the best option because I don't want to be cutting checks to multiple places, especially if we may switch over completely later

B. Change the entire plan over to Vanguard (or an equivalent) - not the best option because I don't feel I am in a position to state exactly why that would be best to my partner yet

C. Transfer my current money over to a "Frozen" Simple IRA - maybe my best option at the moment to simply get it done. I just want to be sure there aren't any negatives to this that I haven't yet considered.

Option D - not presented by Vanguard but I am thinking it may be a possibility. Transfer it over to a traditional IRA. Is this even an option and what are the pro's and con's as compared to option C?

FWIW my assets that I will be transferring over is about $70k and I am continuing to contribute the max each year

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Post by retiredjg » Tue May 17, 2011 5:31 pm

Switching your SIMPLE IRA to Vanguard would be good for everyone. No more loads, no more high expense ratios, plenty of active funds if that is what the partner/others want. Your partner does not really want to pay 5% on the front end just to buy something. You partner probably does not know s/he is even paying this stuff. Even after the funds are bought, Ameriprise charges more annual maintenance (expense ratio) for the exact same thing that Vanguard could offer.

If you cannot convince them, you can do yourself a favor and simply use no load index funds from the no-transaction-fee list. By they way, no load is a different thing from transaction fees. You want to avoid both.

Ameriprise has at least two 500 index funds available without loads or transaction fees. I'm sure there are other index funds available, but have not researched it.

About your option D, if I recall correctly, you can transfer money in a SIMPLE IRA to an IRA after a certain period of time. Suggest you google SIMPLE IRA withdrawal rules or something like that.

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Post by tbradnc » Tue May 17, 2011 5:50 pm

Is option A really that big of a problem?

We have a 5304 and use both Fidelity and Vanguard. My office manager sends the money via ACH biweekly and it's just a matter of changing where the ACH deposit goes - takes no extra time at all.

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Post by Alan S. » Tue May 17, 2011 6:55 pm

You can only do Option A effective January 1st, not mid year. But it may be worth it to increase everyone's total return from that point on.

You can probably do Plan C, but as long as you have met the 2 year waiting period from the date of your first SIMPLE contribution, Plan D is the better option because you can do it right now. But for new SIMPLE contributions you won't escape the present fees and possible front end loads, so you would still probably want to execute Plan A come January 1st and get started at least 75 days prior so the changeover goes smoothly.

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Follow up

Post by RetiringSomeday » Wed May 18, 2011 8:51 am

So if I am choosing between transferring the money over to a "frozen" simple IRA with Vanguard or a traditional IRA with Vanguard what are the pitfalls I need to consider with each.

I have had the simple for more than 2 years so that should not be a concern.

Vanguard hasn't offered the simple to traditional IRA option but as I read the irs site it looks like it should be fine. Is there really much difference for later transfers etc. if it is held at Vanguard in a "frozen simple" or a traditional?

If not I will just put it in their suggested "frozen simple" for now.

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