SIMPLE IRA transfer to TIRA with additional ROTH IRA
I have been in my employers SIMPLE IRA for over 5 years and would like to transfer to a TIRA while keeping the SIMPLE open for current contributions as I will continue working there. In addition, I currently have a ROTH IRA that I contribute to.
I have read from previous posts that I am allowed to transfer from SIMPLE to TIRA as much as I would like. I also understand that I can contribute $13K to my SIMPLE and $5500 to my ROTH at the same time (based on my AGI). Is there a way to utilize all three accounts?
How does opening a new TIRA affect my situation?
A. Should I make sure it the transfer is a “trustee-trustee” or “rollover” from SIMPLE to TIRA?
B. How does it affect my contribution to my ROTH IRA?
Thanks in advance!
Permalink Submitted by Alan - IRA critic on Mon, 2013-09-23 02:52
You are limited to 12k to your SIMPLE IRA plus a total of 5.5k between a TIRA and Roth IRA contributions. You may not be able to deduct the TIRA contribution due to modified AGI, and there is also a higher MAGI limit to contribute to a Roth IRA. You can either transfer directly from your SIMPLE IRA or take a distribution no more than once per 12 months and roll it over to either your TIRA or your Roth IRA as a taxable conversion. Rollovers or direct transfers do not affect your regular contributions at all, with the exception of a taxable conversion will increase your MAGI for the purposes of being able to deduct a TIRA regular contribution.
Permalink Submitted by brian mon on Mon, 2013-09-23 14:51
Thanks Alan,Based on your answer, and wanna make sure I have this correct, here is my plan;Keep contributions to SIMPLE IRA as it has been for the past 5 years as my AGI and MAGI allow.Open TIRA (at a discount broker) and do a direct rollover once every 12 months from my SIMPLE to TIRA. If I understand correctly, this should be non-taxable event as I will not touch the money at all and it will be between brokers.Contribute $5.5K to my ROTH per year from my paychecks as my AGI and MAGI allows. My ultimate goal is to get away from my high fees SIMPLE IRA broker while still being able to keep my 3% employer match and my ROTH.
Permalink Submitted by Peggy Fisher on Mon, 2013-09-23 15:50
If your ultimate goal is to get away from high fees, you might want to consider reviewing the SIMPLE IRA Plan document. Some employers permit each employee to choose his/her own financial institution to receive initial SIMPLE IRA Plan Contributions. If yours plan allows you to choose your own financial institution that could reduce the number of accounts you need to maintain which in turn would reduce the amount of maintenance fees you would need to pay each year.
Permalink Submitted by brian mon on Mon, 2013-09-23 16:04
I wish I could Peggy. We are very small company, 20 employees, and I know my boss would say “your in or your out,” with our current SIMPLE IRA plan. That leaves me to do it on my own. I don’t mind doing any of this myself as I have multiple accounts (2 other taxble investment accounts) already and have a good system setup. The SIMPLE has the highest balance and I am unable to make certain investments because the commissions would eat my returns and then some. Its ridiculous the fees they charge for transactions.
Permalink Submitted by Alan - IRA critic on Mon, 2013-09-23 18:15
You have a good plan then. Since your 2 year requirement in the SIMPLE has been satisfied, you should transfer funds out of the account as often as necessary to reduce the fee exposure. Use direct transfer to avoid the rollover limitation per 12 months. You can do these transfers to either a TIRA (not taxable) or to a Roth IRA (taxable conversion) if a conversion makes sense in terms of the tax rate you will pay for the conversion now vrs your expected marginal rate in retirement for your TIRA distributions and RMDs.