Transfer of SIMPLE IRA
An employee is offered a SIMPLE IRA by her employer. The SIMPLE IRA has a Designated Financial Institution, but the funds offered by the DFI are terrible. It seems like the employee should be able to transfer the SIMPLE IRA to another institution “with no cost or penalty”. How do we to go about this? Does the employer have to set up a new SIMPLE plan at the new institution? If so, does that violate the rule of “no other retirement plans offered”? When we have contacted another institution to move the employee’s SIMPLE IRA over, the institution wants to treat it as a rollover, which does not seem to be correct because this still needs to be a SIMPLE IRA, doesn’t it?
Any help would be appreciated.
Permalink Submitted by Alan Spross on Thu, 2011-10-27 19:49
An employee can roll the funds in a SIMPLE IRA out of the SIMPLE plan to another type of IRA only after two years has passed from the date of the first contribution to the SIMPLE IRA.
The employer has the option to adopt a plan that either allows the employee to select the financial institution to receive the contributions (Form 5404- SIMPLE) OR requires the employee to use the institution selected by the employer (Form 5305- SIMPLE). If the employer wants to change this election, they must adopt the new plan and provide the required notification lead time to employees. I believe that this election can only be changed effective Jan 1st.