Simple IRA

Submitted by Jerry Matecun on Wed, 2017-01-25 16:13

I have a small business owner who wants to establish a SIMPLE IRA. I’ve never set one up. It looks straightforward. No filings, no 5500 etc as with 401K plan. Just the 5304 or 5305.

Can I rely on my custodian to give me full information on how to ensure any other IRS/regulatory requirements are being met? Such as proper funding (deferrals and match), account setup, etc?

Thanks



Submitted by Alan - IRA critic on Wed, 2017-01-25 16:25

  • SIMPLE IRAs have changed very little in the last 20 years. Suggest reading Notice 98-4 here:  https://www.irs.gov/pub/irs-drop/not98-4.pdf
  • Select a custodian that has experience with SIMPLE IRAs because there ARE requirements to be met, particularly regarding the criteria selected for eligible employees and the notification requirements and deadlines. One key is whether you use the 5304 or 5305. Almost all 5305 plans have high fees and expenses and some employees might be unhappy. If they are upset with the fees, they have the right to set up transfer SIMPLE IRAs with another firm and your designated institution (DFI) must then transfer the contributions without fees or penalties to the other institution during the 2 year period in which transfers can only be made to another SIMPLE IRA.
  • On the other hand, a 5304 will make informed employees happier because they set up the SIMPLE IRA where they want to, but other employees may not understand what to do and your administrative costs may be higher dealing with several different custodians to which the contributions must be sent. Summary – 5304 will make most employees happier, 5305 will make YOU happier but could cause problems with the smarter employees who understand what the high fees do to their returns.

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