SIMPLE IRA Help
If the employeR is using the 5304 form – NOT for use with DFI – when can the employee designate his own FI? Must it be ONLY during the “enrollment” period, starting nov. 1? Or must the employer allow this at any time?
On 5304, if no FI is written in, the employeR may designate one of his choosing. If the employEE later decided to designate an FI – what can be done?
Finally, if the employeR switches from 5304 to 5305, does the Two Year Rule begin again?
Permalink Submitted by Alan - IRA critic on Wed, 2013-01-16 04:55
These are calendar year plans, so the employer can only change from a designated FI to employee selection or vice versa effective 1/1 with notification by prior 11/1. If employer makes an error on the 5304, there could be wide array of consequences. If the employer makes a switch it does NOT start a new 2 year holding period. IRS Notice 98-4 still remains current with respect to SIMPLE IRA requirements: http://www.retirementdictionary.com/sites/rd.webchuckhosting.com/files/file/notice%2098-4.pdf
Permalink Submitted by Craig Wiencek on Wed, 2013-01-16 15:11
Understood – but the 5304 allows the employee to choose the DFI. The employer only chooses it if the spot is left blank. Even though the spot is blank, and the employeR chose the FI, it is still an option of the employee to choose his own. A similar hypothetical would be (using 5304) employee chooses DFI ZZZ and later on realizes ZZZ is a philosophical mismatch or other disaster, now employee wants to switch to DFI XXX. Can this switch be done at any time during the year?
Permalink Submitted by Alan - IRA critic on Wed, 2013-01-16 19:28
I think your situation is covered by one or more of the examples starting on p 18 of Notice 98-4 (link provided earlier). The Notice also makes clear that if the EE does not establish their own SIMPLE IRA account by the time the employer must make contributions, the employer will choose their own custodian and open the account themselves. This does not make this institution a DFI. It also appears in one of the examples that if this happens, the institution is not required to allow the EE to request a direct transfer to another institution mid year.