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SIMPLE IRA transfer to regular IRA while still employed with the company?


Guest bsmith12
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Guest bsmith12

Our small company has a SIMPLE IRA plan with Oppenheimer. I would like to transfer the funds out of this high-expense/lousy fund company over to my IRA at Vanguard. I am still employed with the company and have been employed with the company for well over 2 years.

Wikipedia says:

"Unlike a 401(k), a SIMPLE IRA cannot be rolled over to a Traditional IRA without a waiting period (two years from the date the employee first participated in the plan)."

I had thought SIMPLE IRA's were like 401(k)'s in that funds could not be removed until after employment had been terminated with the company.

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I think you can roll at any time, but if within the first two years it would be considered a distribution for purposes of the extra penalty tax on SIMPLEs. I could be wrong, maybe you can't roll at all, but you don't want to do that anyway.

You should be looking at this from a different angle - SIMPLE plans are either of the "designated institution" variety or the non-designated institution variety. If they are with a designated institution, and Oppenheimer is that designated institution, you have the right to tell Oppenheimer to move the money to another institution within a certain period of time, without them assessing a cost or penalty. If you don't have a designated institution, you can go wherever you want in the first place - although this is not necessarily widely advertised.

(Maybe you know all that already and are just trying to salvage money that's already there. If so, sorry for providing too much information.)

Ed Snyder

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Guest bsmith12

bird, more information is always good!

How would I find out if it's a "designated" institution? Call the company's financial advisor who set this up? Or would Oppenheimer be able to tell me directly without sending up a red flag to the financial advisor?

Regarding the two-year thing - would monies deposited into the Oppenheimer account within the last 2 years be subject to a penalty if rolled over, or would I be able to transfer all monies in the account without penalty since I have been employed with the company longer than 2 years ?

Thanks.

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Oppenheimer should be able to tell you if they are a designated institution or not.

The 25% penalty applies to distributions within two years of initial participation in the plan (not employment). After that, any and all money may be rolled.

I happened across the answer to the point I raised, and must correct myself. You can't roll to a regular IRA within the first two years. (I thought maybe you could roll but it would be subject to the penalty.)

Ed Snyder

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Guest bsmith12

Ok, so just to clear this up... Since I have participated in the plan for more than 2 years, I am able to roll all money in the Oppenheimer SIMPLE to my Vanguard IRA without penalty?

... and since I have participated in the plan longer than 2 years, designated/non-designated institution is not a factor in my situation?

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Ok, so just to clear this up... Since I have participated in the plan for more than 2 years, I am able to roll all money in the Oppenheimer SIMPLE to my Vanguard IRA without penalty?

Yes.

... and since I have participated in the plan longer than 2 years, designated/non-designated institution is not a factor in my situation?

I think it makes a difference as far as new money is concerned. If you want new money to go directly to Vanguard, then it must be a non-designated. If it is non-designated and the money goes to Oppenheimer first, then yes, you can roll it out, but the issue then is whether or not you are buying funds with a sales charge. I doubt you want the money to go into Oppenheimer, pay a sales charge and then take it out. (That problem is avoided if contributions go into an A share money market fund - of course, if it is non-designated, then there's no point in the money going through Oppenheimer anyway!). If it is designated, then the money must go to Oppenheimer but you also have the right to transfer it without a sales charge being imposed.

Ed Snyder

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Guest bsmith12
I doubt you want the money to go into Oppenheimer, pay a sales charge and then take it out. (That problem is avoided if contributions go into an A share money market fund

Heh. I asked the financial advisor this very thing a long time ago. "Can I just put my money directly into their money market fund?" He gave me a strange look and declared "no that's not an option". LOL. Of course not, because he would get screwed out of his cut of that lovely 5.75% front end load!

Thanks for the tips, I appreciate it.

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You should move the funds as a trustee-to-trustee transfer, and not as a rollover. Less room for errors, and you can complete transfers as many times as you like. Rollovers are limited to one per 12-months per involved IRA.

See http://www.retirementdictionary.com/2-year...-SIMPLE-IRA.htm

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 bsmith12
You should move the funds as a trustee-to-trustee transfer, and not as a rollover. Less room for errors, and you can complete transfers as many times as you like. Rollovers are limited to one per 12-months per involved IRA.

See http://www.retirementdictionary.com/2-year...-SIMPLE-IRA.htm

I'm letting Vanguard do the work of transferring the money from Oppenheimer (I beleive this is trustee-to-trustee?)

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You should move the funds as a trustee-to-trustee transfer, and not as a rollover. Less room for errors, and you can complete transfers as many times as you like. Rollovers are limited to one per 12-months per involved IRA.

See http://www.retirementdictionary.com/2-year...-SIMPLE-IRA.htm

I'm letting Vanguard do the work of transferring the money from Oppenheimer (I beleive this is trustee-to-trustee?)

Yes. If you complete Vanguard's ACAT/Transfer form, and have them request the assets via a transfer, then the transaction is a trustee-to-trustee transfer, which is non-reportable and nontaxable.

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 bsmith12

It's interesting, even at Vanguard there is some confusion about this topic (at least in the e-mail support dept.). First they told me I needed to be terminated from my employer before I could do the transfer. I quoted them the IRS chapter and verse about the "2-year" rule. They checked again and said I was correct. (IMHO, even the IRS site is vague about the SIMPLE IRA employment status thing ... )

Then the next hurdle was their online SIMPLE IRA transfer form - it's designed to go from SIMPLE IRA to a Vanguard SIMPLE IRA (not a traditional IRA). Not what I wanted.

Sooo... I picked up the phone and talked to a very helpful rep who walked me through the whole thing, even did a couple of 3-way conference calls with Oppenheimer to get all the facts straight. I was EXTREMELY impressed with Vanguard's level of customer service. Anyhow, what I had to do is fill out a standard IRA rollover form with Vanguard and snail-mail the forms in. No way to do this 100% online yet. The SIMPLE IRA transfer form has nice boxes to specify which funds/percentages/dollar amounts to do partial transfers from, the standard Vanguard IRA rollover form does NOT have this, so I had to make up another document with the specifics.

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