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SIMPLE IRA SET UP


Guest Gary S
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Guest Gary S

My wife works for an employer who uses Merrill Lynches Prototype SIMPLE IRA documents. The adoption agreement clearly states that Merrill is not acting as a designated financial insitution. The salary deferal agreement clearly states that participants can invest their contributions at the financial institution of their choice if there is no designated financial institution, which there clearly is not. However, the financial institutions we have asked to open accounts say they cannot open an account using Merril's adoption agreement and the employer must sign an IRS model 5304 for accounts not to be held at Merrill. But this doesn't make any sense. How can an employer sign multiple adoption agreements on different dates? Can financial iinstitutions accept other financial insistutions' prototype SIMPLE IRA adoption agreements. If not, this would seem to defeat the IRS intention that participants control their SIMPLE IRA accounts including where they are set up.

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It seems the individuals you are speaking with do not understand the requirements.

Unless the Merrill Lynch prototype says that assets under the SIMPLE cannot be held elsewhere, individuals hold their accounts at other financial institutions. From what I recall of the Merrill Lynch SIMPLE adoption agreement- there is no such restriction.

The adoption agreement, which is the agreement you would complete to establish your SIMPLE IRA at the other financial institution, may have an area for your employer to complete and sign. That, along with a copy of the Merrill SIMPLE adoption agreement should be sufficient.

You may need to have the call escalated to a manager

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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Guest Gary S
It seems the individuals you are speaking with do not understand the requirements.

Unless the Merrill Lynch prototype says that assets under the SIMPLE cannot be held elsewhere, individuals hold their accounts at other financial institutions. From what I recall of the Merrill Lynch SIMPLE adoption agreement- there is no such restriction.

The adoption agreement, which is the agreement you would complete to establish your SIMPLE IRA at the other financial institution, may have an area for your employer to complete and sign. That, along with a copy of the Merrill SIMPLE adoption agreement should be sufficient.

You may need to have the call escalated to a manager

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Guest Gary S

Should the second word of the first sentence in the second paragraph be accout rather than adoption? That is Account Agreement not Adoption agreement?

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Good question. It should be adoption agreement.

The SIMPLE IRA adoption agreement (the SIMPLE-SA or the SIMPLE-S, or the custodians own Adoption agreement ) is completed by the account owner- see example at http://www.irs.gov/pub/irs-pdf/f5305sa.pdf

The account agreement is completed for all accounts. For IRAs, the IRA adoption agreement is completed in addition to the account agreement. The account agreement is usually separate from the adoption agreement, but some financial institutions merge both into one form.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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Guest Gary S

I'm having real trouble replying to your message so I'll try it this way Hopefully you'll remember what I'm talking about. Your previous messages are copied below.

If you are refering to the SA and S forms in the second paragraph then shouldn't it read "The Custodial or Trust Agreement,... rather then "The adoption agreement,..." Aren't the 5304 and 5305 (plan) adoption agreements and the 5305 SA and 5305 S Custodial and Tust Agreements. This is important because the institution I'm talking with seems to be confusing the 5304 and accompanying material with a custodial agreement and that's why they want us to sign it in place of Merrill's adoption agreement. I believe Merrill's agreement, the model 5304 or model 5305 are adoption agreements, and the 5305 SA, S or an insitutions own agreement are custodial or trust agreements. Isn't this an important distinction. In the case of a SIMPLE PLAN with a non designated financial instutiton one would need an plan adoption agreement (be it a 5304, 5305 or prototype) and a custodial or trust agreement (be it a 5305 AS, S or prototype).

Good question. It should be adoption agreement

The SIMPLE IRA adoption agreement (the SIMPLE-SA or the SIMPLE-S, or the custodians own Adoption agreement ) is completed by the account owner- see example at http://www.irs.gov/pub/irs-pdf/f5305sa.pdf

The account agreement is completed for all accounts. For IRAs, the IRA adoption agreement is completed in addition to the account agreement. The account agreement is usually separate from the adoption agreement, but some financial institutions merge both into one form.

It seems the individuals you are speaking with do not understand the requirements.

Unless the Merrill Lynch prototype says that assets under the SIMPLE cannot be held elsewhere, individuals hold their accounts at other financial institutions. From what I recall of the Merrill Lynch SIMPLE adoption agreement- there is no such restriction.

The adoption agreement, which is the agreement you would complete to establish your SIMPLE IRA at the other financial institution, may have an area for your employer to complete and sign. That, along with a copy of the Merrill SIMPLE adoption agreement should be sufficient.

You may need to have the call escalated to a manager

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If you (Appleby) are refering to the 5305 SA and 5305 S forms in the second paragraph then shouldn't it read "The Custodial or Trust Agreement,... rather then "The adoption agreement,..." Aren't the 5304 and 5305 (plan) adoption agreements and the 5305 SA and 5305 S Custodial and Tust Agreements. This is important because the institution I'm talking with seems to be confusing the 5304 and accompanying material with a custodial agreement and that's why they say they want us to sign it in place of Merrill's adoption agreement. I believe Merrill's agreement, the model 5304 or model 5305 are "adoption agreements", and the 5305 SA, S or a similar prototype agreement issue by a financial institution are "custodial" or "trust agreements." Isn't this an important semantic distinction? In the case of a SIMPLE PLAN with a non designated financial instutiton one would need a plan adoption agreement (be it a 5304, 5305 or prototype) and a custodial or trust agreement (be it a 5305 SA, S or prototype). I think what you are refering to in the second paragraph is a custodial or trust agreement not an adoption agreement. Is that correct?

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In the technical sense , you are right. In the practical sense, you may want to use the term “adoption agreement’, as that is the term used by most retirement plan practitioners- or find out what term your firm uses and use that term when communicating with them. Here are some examples -pulled from a Google search results- of firms that use “Adoption Agreement” to refer to the participant’s form:

http://www.matrixcapitalgroup.com/New%20PD...s/ira_adopt.pdf

http://www.highmarkfunds.com/Literature/EE...n%20Agmnt-F.pdf

Schwab’s document at http://www.schwab.com/public/schwab/home/a...efpid=P-1001546

I am not convinced it really matters what you call it, as long as you can get your contact at the firm to understand to which form you are referring.

One form is completed by the employer to adopt the plan.

The other is completed by the participant to establish the individual retirement accounts under the plan.

When the employee established the IRA at the other firm, he/she completes the (New) form that is used to establish his/her individual retirement account and provides (along with the new adoption agreement) a copy of the form used by the employer to establish the plan.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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OK. I see what you are saying and it is basically as I understand it. I just have the language a bit wrong.

The employeer establishes or adopts the plan using a 5304, 5305 or prototype document.

The participant adopts a SIMPLE IRA account which includes a 5305 SA, 5305 S or prototype custodial or trust agreement as part of the package (a 5304, 5305 or equivalent prototype is not a substitute for a trust or custodial agreement).

A copy of the document the employer used to establish the plan is provided when the participant adopts the SIMPLE Plan account but a new 5304 does not have to be completed.

Sound correct?

I really appreciate all your help with this.

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Ps When you say "(along with the new adoption agreement)" you do not mean a new 5304 but the documents to open the particpant SIMPLE IRA account which do not include a 5304, 5305 or equivalent, correct? I'm sorry to ask so many question that might seem nict picky but I am anticpating the responses I am going to get from others.

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OK. I see what you are saying and it is basically as I understand it. I just have the language a bit wrong.

The employeer establishes or adopts the plan using a 5304, 5305 or prototype document.

The participant adopts a SIMPLE IRA account which includes a 5305 SA, 5305 S or prototype custodial or trust agreement as part of the package (a 5304, 5305 or equivalent prototype is not a substitute for a trust or custodial agreement).

A copy of the document the employer used to establish the plan is provided when the participant adopts the SIMPLE Plan account but a new 5304 does not have to be completed.

Sound correct?

I really appreciate all your help with this.

I wouldn’t say you have it wrong. Some of us just tend to use ‘industry terms’, which sometimes confuse some of those who use the terms assigned by the IRS etc

You have it right- except that I would say , a copy of the 5304 should not be completed

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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Ps When you say "(along with the new adoption agreement)" you do not mean a new 5304 but the documents to open the particpant SIMPLE IRA account which do not include a 5304, 5305 or equivalent, correct? I'm sorry to ask so many question that might seem nict picky but I am anticpating the responses I am going to get from others.

No need to apologize. Better to make sure than to meet roadblocks later.

You are correct again. So if I reword my comment a bit…

When the employee establishes the IRA at the other firm, he/she completes the (New) form that is used to establish his/her individual retirement account. This New form is the 5305-SA or 5305-S or SIMPLE IRA adoption agreement

and

provides (along with the new 5305-SA or 5305-S or SIMPLE IRA adoption agreement ) a copy of the form used by the employer to establish the plan, i.e. the 5304/5305/protptype .

I hope it goes well.

Please let us know if you experience any challenges

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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Thanks so much again. I have one more question concernig this if you don't mind.

I've been told by more than one insitution that they cannot accept the Merrill document estbalishing the plan. That a model 5304 would need to be completed and signed by the employer to open the account with them. One even inserts specific language concerning their instution in Article VI of the form. I think you have clearly established that a 5304 is not neccessary. The Merrill document should do. But should a 5304 even be done if there is already a protytpe document establishing the plan? These institutions say that the 5304 for them simply is in addition to the original document establishing the plan. But this doesn't make a lot of sense to me. If the employer signs a 5304 which is dated after the original document establishing the plan was signed and dated isn't he replacing the original plan document with the new 5304 for the whole plan and not simply creating an additional document for the specific insitution that will open the account?

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Gary- apologies for the delayed response. This week is an on-the-road week for me.

I agree with you. Completing a new 5304 would in effect replace the original document.

Would you mind saying which financial institution you are working with? If you do not want to post it here, feel free to send me an E-Mail. To send me an E-Mail, click on my username and then click on the e-mail button to the right. I know quite a few operations managers and may be able to have them address the issue.

Denise

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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Denise,

Thanks for you latest message. I thought maybe you figured you told me all there is to tell and I wouldn't have blamed you. Again you have confimed what I thought and what seems to me to be common sense. I don't want to say the name of the institution at this time or without their permission. I think the problem is being resolved. But I will keep your offer in mind.

I can't thank you enough for how generous you've been with your knowledge and time and I hope I can return the favor somehow someday.

Gary

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Some financial organizations permit the estalishment of a SIMPLE IRA where the employer already has a SIMPLE-IRA plan at another institution. One such organiation is the Seligman Family of Funds (800-221-7844).

Does anyone know of other institutions that DO NOT require the employer to adopt "additional" SIMPLE-IRA plans?

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