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I work for a small business that I love, and am trying to make a career out of.

Our office manager handles payroll and bank accounts, and is in charge of disseminating information on our retirement plan. Our employee handbook calls this plan a "Simple IRA" - note the lack of caps on Simple.

We are instructed to open an IRA account, and get the account information to the office manager, who will handle contributions during payroll. My understanding, though, has these problems: since my employer isn't managing this IRA, is it truly a "SIMPLE" IRA? If not, since it is technically not a SIMPLE, does that mean that employer contributions will count against my personal yearly contribution cap? Or can any Joe open a Traditional IRA online, and have his employer contribute to it without counting against his cap?

My bosses are my friends, which is great for me. However, since my bosses are actually the only other employees that are utilizing the plan, looking for advice on this is touchy - ours is a workplace that doesn't discuss compensation openly, and so it would be a little awkward for me to pose the question, "So, are you contributing your maximum $13000, and if so, are the added contributions by The Company causing you any over-contribution problem?" What I have learned is that my direct boss opened an IRA with a popular online stock trading company and personally manages his IRA there. I haven't had it in me to ask him how much he contributes, caps, and The Company's contribution.

Already asking the office secretary questions about whether or not this is a SIMPLE IRA or a "Traditional IRA plus employer contributions" has gained me an awkward silence and a confused look.

It would be nice, though, if my inexperience has me confused and I'm just over-thinking the differences between SIMPLE and Traditional. If I'm right, though, I'd like to be armed with a bit more information before I broach the topic again, and ask they speak with their CPA about it.

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found this comment when searching the boards for more SIMPLE info, which says:

bNeta86 said:   most simple IRA's allow you to use whatever custodian you want. It is rare that a company will dictate which providor you use. So make sure you take advantage of the 3% free money and just tell them where to send your contributions. (if you want to continue to use VG)

so, now, mind = blown

do i pretty much find out the best online trader, and tell them i'm opening my "own" SIMPLE?

No, you'll need your employer to fill out their part for the account opening if you are going with a new broker. I used fidelity when I opened one for my wife as they wanted everyone to use Edward Jones, which was a rip off between the 6% load fees and high annual fees to name a few.

mechiah said:   found this comment when searching the boards for more SIMPLE info, which says:

bNeta86 said:   most simple IRA's allow you to use whatever custodian you want. It is rare that a company will dictate which providor you use. So make sure you take advantage of the 3% free money and just tell them where to send your contributions. (if you want to continue to use VG)

so, now, mind = blown

do i pretty much find out the best online trader, and tell them i'm opening my "own" SIMPLE?


The non-DFI (designated financial institution) arrangement is much less common. The more common one is when the plan uses a designated financial institution (DFI), meaning everyone must use the same company for the SIMPLE IRA account.

SIMPLE IRAs are designed for small businesses (employee participant cap of 100 people). Allowing employees to select their own financial institution is a payroll contribution/accounting nightmare... hence why the more common choice is the DFI route.

It is very likely your company's plan is a SIMPLE IRA... in practice nobody uses "simple IRA" unless it is specifically what the IRS calls a SIMPLE IRA. Payroll funded Traditional/Roth IRAs have pretty much gone out of favor these days.

What you need to find out to answer your questions about the contribution limits and whether you can pick your own investment provider or not:

1) Is this a SIMPLE IRA plan, or a payroll funded Trad/Roth IRA plan?

2) If it is a SIMPLE IRA plan, is it a DFI or non-DFI plan?


To find out what type of plan it is, you need to find the right person to ask. If the employer used a financial advisor/consultant/planner to set up the plan, start there. Everyone's fees or sales loads goes to pay for that person's time, so make him/her work for it.

----------------
To answer what parts of your question I can now...

If the plan is a SIMPLE IRA plan (more common), the contributions are separate from the Trad/Roth IRA contributions and do not count against the Trad/Roth IRA contribution limits. You can contribute up to the SIMPLE IRA limit AND also an additional personal Trad or Roth IRA contribution up to those limits.

And you are on the right track regarding sensitivity of your peers compensation and financial situation. Don't pry or ask loaded questions. Everything you need to know for your personal investing can be done without any knowledge of what your peers are doing. Are you even sure the IRA your direct boss has mentioned is the company sponsored plan IRA or his own personal IRA / old 401k rollover IRAs?

Jahlapenoez said:   mechiah said:   found this comment when searching the boards for more SIMPLE info, which says:

bNeta86 said:   most simple IRA's allow you to use whatever custodian you want. It is rare that a company will dictate which providor you use. So make sure you take advantage of the 3% free money and just tell them where to send your contributions. (if you want to continue to use VG)

so, now, mind = blown

do i pretty much find out the best online trader, and tell them i'm opening my "own" SIMPLE?


The non-DFI (designated financial institution) arrangement is much less common. The more common one is when the plan uses a designated financial institution (DFI), meaning everyone must use the same company for the SIMPLE IRA account.

SIMPLE IRAs are designed for small businesses (employee participant cap of 100 people). Allowing employees to select their own financial institution is a payroll contribution/accounting nightmare... hence why the more common choice is the DFI route.

It is very likely your company's plan is a SIMPLE IRA... in practice nobody uses "simple IRA" unless it is specifically what the IRS calls a SIMPLE IRA. Payroll funded Traditional/Roth IRAs have pretty much gone out of favor these days.

What you need to find out to answer your questions about the contribution limits and whether you can pick your own investment provider or not:

1) Is this a SIMPLE IRA plan, or a payroll funded Trad/Roth IRA plan?

2) If it is a SIMPLE IRA plan, is it a DFI or non-DFI plan?


To find out what type of plan it is, you need to find the right person to ask. If the employer used a financial advisor/consultant/planner to set up the plan, start there. Everyone's fees or sales loads goes to pay for that person's time, so make him/her work for it.

----------------
To answer what parts of your question I can now...

If the plan is a SIMPLE IRA plan (more common), the contributions are separate from the Trad/Roth IRA contributions and do not count against the Trad/Roth IRA contribution limits. You can contribute up to the SIMPLE IRA limit AND also an additional personal Trad or Roth IRA contribution up to those limits.

And you are on the right track regarding sensitivity of your peers compensation and financial situation. Don't pry or ask loaded questions. Everything you need to know for your personal investing can be done without any knowledge of what your peers are doing. Are you even sure the IRA your direct boss has mentioned is the company sponsored plan IRA or his own personal IRA / old 401k rollover IRAs?


OP already mentioned that it wasn't a DFI as he could go anywhere and if it was you don't need to pay load fees or ACAT fees.

Per IRS regs. for DFI

"Written notice that the employee can transfer his or her balance without cost or penalty if you are using a designated financial institution."

Jahlapenoez said:   Are you even sure the IRA your direct boss has mentioned is the company sponsored plan IRA or his own personal IRA / old 401k rollover IRAs? fairly certain. the "bosses that are my friends" happen to be the office manager and company president (my direct supervisor, but not company owner), who are also a married couple. while i'm more open about financial matters, i'm aware to some it is taboo for everyday conversation. also, we share the load of the stress that is running the company, five days a week; when we're hanging out on saturday, i think we all like to avoid heavier topics.

anyway, you turned me on to a new terminology i was passing up earlier: DFI. some more googling has armed me with this, which, if the Office Manager is correct and this is a true SIMPLE, tells me what forms i need to bring them if i were to open a non-DFI SIMPLE at bank of my choice.

thanks for that!

mechiah said:   Jahlapenoez said:   Are you even sure the IRA your direct boss has mentioned is the company sponsored plan IRA or his own personal IRA / old 401k rollover IRAs? fairly certain. the "bosses that are my friends" happen to be the office manager and company president (my direct supervisor, but not company owner), who are also a married couple. while i'm more open about financial matters, i'm aware to some it is taboo for everyday conversation. also, we share the load of the stress that is running the company, five days a week; when we're hanging out on saturday, i think we all like to avoid heavier topics.

anyway, you turned me on to a new terminology i was passing up earlier: DFI. some more googling has armed me with this, which, if the Office Manager is correct and this is a true SIMPLE, turns me on to what forms i need to bring them if i were to open a non-DFI SIMPLE at bank of my choice.

thanks for that!


Everything can be answered if you just ask for and receive a copy of the plan, which the employer needs to provide you with.

Was the plan filed on form 5304 or 5305 with the IRS? Read the top of the form in big bold letters and you can see what you have and your options.

TheAccountant said:   Everything can be answered if you just ask for and receive a copy of the plan, which the employer needs to provide you with.

Was the plan filed on form 5304 or 5305 with the IRS? Read the top of the form in big bold letters and you can see what you have and your options.
right, that's the problem i was running into with the "blank stares," i asked the person in charge of it for any documentation, and i was just pointed to the two paragraphs in the employee handbook that called it a Simple IRA.

mechiah said:   right, that's the problem i was running into with the "blank stares," i asked the person in charge of it for any documentation, and i was just pointed to the two paragraphs in the employee handbook that called it a Simple IRA.

Is there any chance the employees are opening traditional IRAs, and the employee doing the payroll is foolishly using SIMPLE rules in funding them without ever registering a plan?

Everything they really need to know is right here.

TheAccountant said:   OP already mentioned that it wasn't a DFI as he could go anywhere and if it was you don't need to pay load fees or ACAT fees.

Per IRS regs. for DFI

"Written notice that the employee can transfer his or her balance without cost or penalty if you are using a designated financial institution."


Well given the wall of text and content, I presumed the OP has not confirmed if its a DFI or non-DFI plan. Many SIMPLE IRA providers by default use the DFI model agreement unless the non-DFI is asked for.

Even if it is DFI, you are correct that there is the option to periodically transfer the balance to another SIMPLE IRA (or any IRA after 2 years) without cost/penalty. But the employer could still require all payroll contributions go initially to one financial institution... And thus the OP needs a little extra work to setup the DFI account to use something with no sales loads and periodically process transfers.


OP, from your follow-up on the office people's blank stares... ask if the CPA/accountant is the one who set this up? Or ask who (or a 800 number if it was a generic service rep) walked your boss through how to setup/handle it. That is the person you should bring your questions to.

Jahlapenoez said:   Well given the wall of text
OFFENCE: TAKEN. that was some well-spaced text, pal.

FOLLOW UP OF TARDINESS:

from the conversation in this thread, i learned the term DFI, researched it further, and figured out that must be what our confusion is about. unfortunately the people in charge of this at work still didn't know what was up, didn't recognize that term, so i just went with it and took the plunge; it worked out fine.

Vanguard was the most appealing, of course, but being new to retirement savings didn't have the $25k (or whatever it was) initial investment to spend on it.

next I tried OptionsXpress, but that was a wasted week and a half. their website promoted it as if it was a non-DFI option, and even their online application generated a filled-out 5304-Simple for me to get signed and fax in... but then a week later they finally responded and said "whoops, we don't do that anymore, here, fill out a 5305-Simple to have your employer designate us as DFI." I said no thanks.

finally settled on E*Trade, because i was tired of looking, really. they had the low-intial-investment mutual funds i wanted with no fees, so there i've been for five weeks.

thanks everyone that contributed, you gave me the nugget that sent me off in the right direction.

okay i'm not offended anymore.



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