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Moving the assets of a SIMPLE


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SIMPLE plans are not my bailiwick, with that said here is my question...

I have a financial advisor who has a few SIMPLE plans and he asked me what he needs to do to move the assets of the plan from one custodian to another. What he has been doing is placing his SIMPLE plans with a large mutual fund who prepares all the paperwork for the plan. These simple plans are not going to essentially change at all. He simply wants to move the assets from the mutual fund to individual investment accounts somewhere else to offer a wider range of investment choices.

Thoughts... suggestions?

Thanks

Its not easy being green

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Not going to happen. The participant is in control of the accounts once the assets are place in them. The only thing the advisor may do is to set up additional accounts for subsequent contributions; assuming the SIMPLE IRA is with a designated financial institution. But a participant's balance in the SIMPLE IRA account is solely controlled by the participant.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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huh.. very interesting. But, "with instruction from the participant" can the SIMPLE IRA be moved/rolled over? and subsequent contributions be contributed to the newly established account or is it just something that is never done? As you can imagine, the advisor wants the money under their control!

Thanks

Its not easy being green

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SIMPLE IRA investment accounts can certainly be moved with the consent/directions from the participant even if the SIMPLE is with a DFI.

If the transfer is being made before the account is 24 months old OR the new account is going to accept future SIMPLE contributions then you need to move to a new SIMPLE IRA (use IRS Form 5305-S or functional equivalent).

If the partiicpant just wants to move the current balance AND the accunt is at least 24 months old they can rollover to a traditional IRA.

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We will prepare a new 5305. I am not sure how old the accounts are. What he wants to do is simply bring along the accounts to the new investment platform. Here is what he wants to do....

  1. Establish new Simple accounts for each participant
  2. rollover the old simple accounts into the new accounts
  3. continue the deferrals in the new accounts

Is that being too simple?

Its not easy being green

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Yep, easy enough.

Have employer fill out a new IRS Form 5305-SIMPLE (essentially an amendment and restatement of the "plan") unless the new investment platform requires use of their functional equivalent (very likely)

Have employees fill out new 5305-S forms to establish new investment accounts (or new investment place equivalent)

Send rollover/transfer forms to "old" place to move to "new"

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John,

How often does a SIMPLE need to complete a 5305-S? is once when the plan is established enough until a situation like this happens? I mean, every year a new notice is prepared and sent to all participants and besides that nothing changes.

Also, Is there a specific rollover form for SIMPLE plans? or can I modify my pension plan form with the SIMPLE info?

Thanks

PS - Im curious what people charge to "administer" a SIMPLE plan (prepare the annual notice, determine elig and calculate the match ... that's about it huh). I know it is not good etiquette to ask on these boards that question. I mean, time is money.. and no one works for free...

Its not easy being green

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Remember that Form 5305-SIMPLE (the employer "adoption agreement") and Form 5305-S (the employee investment account document) are IRS generic forms that almost no investment institution that's going to handle the accounts will use, they'll have their own gussied up slick versions, usually in a "kit" with other promotional info.

So you need to go to the "new" place and ask them to send you their set-up forms.

You'll also need to contact the "old" place to get their distribution/rollover/transfer forms for all the participants to sign. Unlikley they'll accept whatever you try to put together.

The IRS forms are updated from time to time and the financial institution will generally take responsibility for keeping your client's forms updated. Form 5305-S was last revised March 2002 and Form 5305-SIMPLE was last revised March 2012. I haven't encountered any employers who are willing to pay for professional help in keeping them legal and out of trouble, they think the financial adviser is doing it for free.

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Gotcha! thanks.. that last post helped.

As for paying me to do some annual busy work for the client, I simply told the financial adviser that there is no form 5500 to file or any real admin that needs to be performed which is why I have not sold my services in this area. I did say to him though that I will need to be compensated for my time if Im to be a check and balance for the SIMPLE. I got the feeling that he himself was either going to pay that expense or prepare an argument to present to the client why they should.

Thanks for your help, I really appreciate it!

Howe

Its not easy being green

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The assets should be moved as transfers, not rollovers. Though rollovers can be used, it is not necessary in such cases and leaves room for errors and violation of the rollover rules- errors and violations that would not occur with transfers.

Check the type of form the employer uses vs. the one required by the new custodian.. It could be a 5304 or 5305-SIMPLE- the transfer rules are different for each- see Notice 98-4

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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I think it is always wise for the sponsor of the SIMPLE IRA plan to at least due a cursory consultation with their tax or legal advisor....especially in an instance like the one being discussed where the financial advisor is far from an expert in this area. Yes these are "simple", but there are still considerations regarding the plan operation and tax considerations. For example, a SIMPLE IRA plan can incur operational defects (e.g...excess contributions) that should be addressed through the IRS EPCRs program.

The problem I normally see with SIMPLE plans is that no one with any real expertise is involved UNTIL something gets missed or goes wrong. You can expect only limited (or no) assistance from the fund company as they are only be used for their investment products. They are not being paid to administer or consult when potential issues arise. This can be a real source of frustration for the plan sponsor when no one advises them proactively that neither the financial advisor or the fund company have the expertise to handle 100% of the aspects of their retirement plan.

Having the proper professionals (plural) advising on the front end will hopefully avoid any issues down the road or at the very least, have established this relationship so this is in place should something come up.

Good luck.

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