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SIMPLE IRA


Guest Laura Millwood
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Guest Laura Millwood

How do you handle the situation if someone overfunds their SIMPLE IRA (put in $12,000 of deferral instead of $6,000)? How is the money refunded? 1099?

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According to IRS (although not in writing) the SIMPLE plan has ceased to exist and none of the contributions by any of the employees or the employer are valid. The "excess" contributions are excess contributions. They can't be used up since a simple IRA can not be used as an IRA. Seems as though they should be removed by the employee and the employer should treat them as "wages" for all purposes. Perhaps others will have other ideas!! If your client seeks a private letter ruling (PLR) I would love to be involved (and or copied on all correspondence)! Is there any chance that the EE money could be treated as ER money??

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Guest Laura Millwood

Do you mean the SIMPLEs that we have set up are no longer valid? I haven't seen anything alluding to this. We have several clients wanting to start them 1/1/99. Are you saying they shouldn't? When do you think it is going to made public that SIMPLEs don't exist aymore - or am I misunderstanding? How can they not exist anymore when they just came into being last year?

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My response was in regard to the question you asked regarding an OVERFUNDED Simple IRA plan. Simple plans still exits; although the one you inquired about (being overfunded) may have ceased to exist. While I do not buy in to the IRS's position it has been stated in public. A PLR is probably the only recourse since the IRS will not officially answer the question in writing.

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Our small business started a SIMPLE IRA this year with Schwab. As administrator for the plan, I am happy with it. AG Edwards claims they can offer the same thing for the same money with the same options and more hand holding for employees. They also claim there is less feduciary responsibility and risk for me as an employer. I realize this a vague, subjective question, but can a hands on broker such as this provide a level of insulation for me as an employer?

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General rule of thumb: If it ain't broke don't fix it. Why not ask how they can reduce your fiduciary liability (which probably isn't that high to begin with) and what they will do and how often they will do it. Surely they don't want to be a fiduciary with respect to the plan. Ask them if they have any objection if you or the participants "blindly" follow their advice "every" time it is given. Get it in writing (signed). Your prime responsibility (once you have prudently selected the investment vehicles) is to annually review them to determine if they are meeting their stated objectives and following their policy. Keep a file. A "full service" broker that would issue you an annual "fiduciary report" would be nice (but it probably won't happen). Will they calculate contributions and participant allocations under the plan. Aside from investing and reinvesting plan assets what else will they do? Will they provide individualized advice, give seminars, do financial planning? Get it in writing?

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