Employer Chose the Custodian of my Roth IRA

[Guest Confu]

My employer has agreed to match 25% of what I put into my Roth IRA but will not match anything beyond 12% of my salary and but I must go through the brokerage firm my employer has signed a contract with. Is it legal for my employer to chose the custodian of my Roth IRA account? I have a feeling the answer is going to be that if I want that extra 25% I have to go through that brokerage firm, therefore if I chose another brokerage firm I do not get that extra 25%.

[masteff]

So the limit on Roth IRA for 2008 is $5000. To get the full match, you'd put in $4000 and they would match with $1000 (assuming your salary is more than $8333.34 for the year). Is using your preferred brokerage firm worth $1000 to you?

Is there some particular reason to not like the brokerage the company uses (eg, the only investments available are CD's or annuities or a severely restricted list of mutual funds)?

[WDIK]

Is there any chance we are actually talking about a Roth 401(k)?

[Locust]

That money is yours once it is in the Roth IRA. You can transfer from that Roth IRA to a Roth IRA with a brokerage company you choose.

[Guest Confu]

I think you guys above are right and this probably isn't a Roth IRA because I would be pushing over the limit of $5,000 a year to put away. My employer has been using the term Roth IRA since I started working and I never questioned if that was what this really is. And the extra 25% is certainly worth it to stick with the brokerage firm but I was curious as to what was legal and want to have control over what is done with my money. I'm 90% sure this can't be a Roth IRA my employer is talking about. Sorry for my ignorance and thanks for the help.

[WDIK]

If we are talking about a 401(k), the investment options will be established by the plan language and policy. It would be likely that you would be required to make investment elections through a particular provider. You should request a copy of the plan's Summary Plan Description (SPD).

[Guest Confu]

SIMPLE IRA!

It's called a simple IRA which is what my employer uses. It's a retirement plan for companies with fewer than 100 employers. It's like a traditional IRA but you can put more money into it yearly.

[masteff]

SIMPLE IRA!

Glad you were able to clear that up. Back to your original question. On SIMPLE's the employer has a choice to pick an institution for all employees to use or to allow the employees to pick. Obviously, your employer decided to make the choice. This is allowable. One big issue for your employer is trying to coordinate making contributions to every employees' account. If they allow you to pick, then they might have to send money and data to multiple places. By just using one, it allows your employer to simplify their administrative burden.

You can always rollover or transfer later.

[Appleby]

This may be getting a little technical here but I hope it helps….

When your employer adopts a SIMPLE IRA, he/she ( he) has two options from which to chose-for purposes of SIMPLE Adoption agreement, which dictate the terms of the plan. These options are :

1) The 5304-SIMPLE: Under this document, employees can choose to establish their SIMPLE IRA with any financial institution that can set up SIMPLE IRAs, and

2) The 5305-SIMPLE: Under this document, employees are required to establish a SIMPLE IRA with the designated financial institution. These employees can still establish a SIMPLE IRA with their financial institution of choice ; however, employees who so choose to do will be maintaining two SIMPLE IRAs , as the second SIMPLE IRA is eligible to receive only transfers and rollover contributions. The first SIMPLE, established with the designated financial institution, is the only one that is eligible to receive contributions. The assets can be transferred from the designated financial institution, to the other SIMPLE IRA, but restrictions could apply.

Sounds like your employer choose option 2).