Who Can You Trust? Misinterpreting the SIMPLE IRA Rules

Monday, September 23, 2013

By Beverly DeVeny, IRA Technical Expert

Follow Me on Twitter: @BevIRAEdSlott

You have your IRA at a large, reputable firm. They are going to give you accurate information, right? Not always. Consider the following:

A small business owner establishes a SIMPLE IRA plan for his employees in 2009. A SIMPLE IRA plan allows participating employees to defer some of their wages to the plan, similar to a 401(k) plan. One of the rules for SIMPLE IRAs is that funds cannot be moved to any non-SIMPLE IRA for the first two years of participation in the SIMPLE. The employees who begin participating in the SIMPLE in 2009 cannot move their funds to another type of account until 2011. SIMPLE IRA funds can be moved to another SIMPLE IRA at any time.

In 2012, the business owner transfers his SIMPLE IRA from Company A to Company B, a large, reputable firm. Company B knows that the funds are coming from an existing SIMPLE IRA plan and accepts the transfer into a SIMPLE IRA with their company.

In 2013, the business owner becomes unhappy with Company B and wants to transfer his SIMPLE IRA to Company C. Company B refuses to let him transfer the funds. Their reason – you haven’t had the account for two years. In vain, the advisor tells them that the SIMPLE IRA was established in 2009. He reminds Company B that they accepted it as a transfer of an existing account. He points out that it is being transferred to another SIMPLE IRA. Nothing will budge them. They have nominated themselves as the SIMPLE police and what they say goes, no matter what. The advisor has escalated his request, but has yet to find anyone in the company with a better understanding of the SIMPLE IRA rules.

The client is faced with the option of taking a distribution of the account balance payable to himself and doing a 60-day rollover into either his new SIMPLE IRA or to an IRA. We never recommend 60-day rollovers, but here the client may have no choice. All because the large, reputable firm misinterpreted the two-year rule for SIMPLE IRAs.

If your IRA custodian tells you something that doesn’t sound quite right, check it out. Ask someone else. Ask to see where it says that in the IRA agreement or in the tax code. Or ask an Ed Slott trained advisor. You can find a list of our trained advisors on our website at www.irahelp.com. Mistakes can be costly to you.
 

Receive Ed Slott and Company Articles Straight to Your Inbox!
Enter your email address:

Delivered by FeedBurner

 

Post Views: 15
Posted in: , ,

Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to [email protected] for approval.

For white papers/other outflow pieces:

Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:

Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:

Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at [email protected] or (516) 536-8282 with any questions.