SIMPLE IRA
My client has a SIMPLE IRA and one of her participants would like to move her SIMPLE IRA account to another custodian. Does my client need to sign another adoption agreement at the other custodian or can the participant just open up a SIMPLE IRA there and transfer the assets? Can two adoption agreements be in place at one time?
Permalink Submitted by Alan - IRA critic on Wed, 2024-02-21 20:54
If this is a 5305 SIMPLE the participant cannot change the custodian from the designated financial institution (DFI). The salary reduction contributions would have to be made to the DFI, although the participant could open a transfer SIMPLE IRA elsewhere and have the contributions transferred to the new custodian. This is a hassle and probably not worthwhile.
On the other hand, if this is a 5304 SIMPLE the employee could establish a SIMPLE IRA at another custodian and provide the account info to the employer to enable contributions to be made to the new SIMPLE IRA. Contributions will then stop to the original plan.
Permalink Submitted by William Tuttle on Fri, 2024-02-23 12:54
Many 5305-SIMPLE IRA plans are ladden with high advisor fees and/or poor expensive investment choices.
You are correct, a 5305-SIMPLE IRA plan and custodian must allow* rollovers without cost or fees at least monthly.
If it has been < two (2) years since the first employee or employer contribution. The rollover can only go to another SIMPLE IRA rollover-only account.
The only low-cost mainstream SIMPLE IRA custodian I am aware of offering such an account is Vanguard. They refer to it as a “frozen” account.
It is not the adoption of a new SIMPLE IRA plan. Rather, the account is opened under the employer’s existing plan.
If the two (2) year requirement has been met. The rollover can go to a traditional IRA, any other rollover eligible retirement accounts, including a Roth conversion.
*Since 5305-SIMPLE IRA accounts can be profitable for advisors and/or custodians they are sometimes loathe to lose accounts.
This rollover capability must be elected by the participant. The IRS allows and some plans restrict election to the participant’s 60-day notice/enrollment period. It is possible the participant won’t be able to elect the rollovers until the 11/2 – 12/31 period to take effect 1/1/25.
Also, be prepared for improper notice, ignorance, obfuscation and downright obstruction from the advisor and/or custodian.
They have no choice. They must allow this. This is all spelled out in IRS Notice 98-4.