SIMPLE IRA Custodians
Are employers required to allow their employees the option of choosing whatever custodian the employee would like to use for their SIMPLE IRA?
For the annual notification that is to be given to each employee, the IRS website states that in addition to the Summary Description, employers must give employees “Written notice that the employee can transfer his or her balance without cost or penalty if you are using a designated financial institution” (http://www.irs.gov/Retirement-Plans/Operating-a-SIMPLE-IRA-Plan). Is this just talking about rollovers? Or is this talking about the use of another custodian to handle the SIMPLE IRA? This could be a real administrative hassle for employers if each employee had the custodian of their choice.
Thank you.
Permalink Submitted by Alan Spross on Fri, 2012-10-26 16:33
The employer has a choice whether to require their own SIMPLE IRA custodian or to allow employees to individually select their custodians. The employer uses Form 5304 SIMPLE to allow employees to select their own custodian or 5305 SIMPLE to require a designated custodian for all. If the employer wants to change their choice to a designated custodian, they must notify employees by 11/1 about the change effective for the next calendar year, and that is what the rollover or transfer provision is addressing.