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Moving funds from a traditional IRA to a SIMPLE IRA due to bank error

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I posted this topic at bogleheads.org and was recommended that I post here as well. Hoping for any help I can get.

When I became eligible to receive employer contributions into an IRA account, I went to my credit union (since my wife and I have several accounts there already). I had no knowledge of the different types of IRAs and simply told them that I needed an IRA account to accept employer contributions. The teller opened a traditional IRA for me, apparently not realizing that this was the wrong account to accept matching contributions from an employer. My employer began sending checks to this account (flagged as SIMPLE contributions) with my contribution plus a matching amount, and no red flags were raised. This was in January of 2014.

Fast forward to three weeks ago. My credit union's IRA department was internally audited, and my account was flagged as being coded incorrectly—it couldn't accept contributions to a SIMPLE IRA, because the credit union does not offer a SIMPLE IRA. News to me.

I'm currently opening a new SIMPLE IRA account to accept future contributions, but I need to get the money that was incorrectly placed in the traditional IRA out and into the SIMPLE, where it should have been all along. Both my employer and myself have filed our taxes as if the account was a SIMPLE this whole time, so technically it shouldn't make a difference to the IRS if the amount that moves to the SIMPLE is identical to the amount my employer reported contributing. The traditional IRA would be closed as if it never existed (because it shouldn't have).

How do I do this without incurring some sort of penalty? It's not a rollover, nor am I withdrawing funds early—the credit union simply made an error and opened the wrong account for me. Any suggestions would be extremely welcome. I've tried to research this online and it seems to be such an oddball occurrence that I can't find mention of it anywhere.


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The good folks at bogleheads know everything. And if you don't believe me, ask them. They will tell you so. For example, try posting over there with the intent to have an intelligent discussion about investing options. You will find, as did I, that the moment you mention a possibility that is not part of the mission of bogleheads, you will be banned from future participation in their forum. So, people who frequent that forum have a distorted view that is not weighed down with thoughtful analysis.

I am disinclined to participate thoughtfully in a thread that will, in all likelihood, find its way to an area of the internet that is closed off to civil discussion.

I"m sure there are others here that do not share my distaste and will no doubt attempt to help you.

I certainly don't wish to dissuade them from doing so.

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You are correct. You do not want to do a rollover. You want to do a trustee to trustee transfer. If i were you, I would go somewhere to open the new SIMPLE and tell them I want to open an account and transfer money into it.

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I agree with Jim Chad. You might have to provide the long story to new SIMPLE IRA provider to convince it to participate in the correction and you employer might have to join you in the effort. Forty lashes to your employer and your credit union. I assume for now that you are an innocent victim.

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Kind of amusing how the credit union's internal auditors found the problem, which was that the credit union opened the account incorrectly - and the credit union doesn't know how to fix it. See what happens if you just open a new account to accept the SIMPLE contributions, and leave the old one alone. Probably nothing. It's not "right" but from a tax standpoint all those dollars will be treated the same in the long run.

Ed Snyder

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