Author Topic: SIMPLE IRA with form 5305 (aka the bad one)  (Read 314 times)

SilverAg47

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SIMPLE IRA with form 5305 (aka the bad one)
« on: July 30, 2018, 08:02:28 PM »
So my employer has a SIMPLE IRA that I will be eligible for in January 2019.  They currently use form 5305 which means I have a DFI (Designated Financial Institution...in my case it is Oppenheimer).  The load fees and other fees are absolutely terrible, but my boss is sort of friends with the financial person from Oppenheimer that set this up, and obviously that person is getting a nice commission from our company each year. 

As it stands now, my plan is to do the "frozen" SIMPLE IRA account with Vanguard and do monthly transfers to them for the first 2 years, then do my contributions straight to my Traditional IRA at Vanguard from the 2 year point onward (and also roll the Vanguard SIMPLE IRA to the Trad IRA).  From what I have read up on this, it is sort of a tedious task to set this all up and do the monthly transfers.  Unless my research is incorrect, I don't see a way to automate the monthly transfer, or even complete them with a monthly phone call...everything is done by mail?

So my alternative plan is to go to my employer in these next couple of months and see if we can change over to form 5304 and I can then simply pick Vanguard as my custodian and do my contributions directly to them.  Is it even possible for my employer to change over to form 5304 or would Oppenheimer not even allow that?  I know I won't be able to convince my employer to move over to Vanguard, so I wouldn't try to get Oppenheimer out of the picture.  Has anyone out there successfully gone to their employer and gotten them to change from form 5305 to 5304?  I believe the deadline is Nov 2, so we would have to change this over in the next few months.  I am quite certain I am going to ruffle feathers by doing the monthly transfers out of Oppenheimer and into Vanguard and I will probably have a similar experience asking to change over to form 5304, but at least then it would make the 2 years go a lot more smoothly in terms of set up with Vanguard, and my money would be in the stock market faster to grow.

Any advice on someone who has dealt with this whole "5305 SIMPLE IRA/frozen Vanguard SIMPLE IRA" mess would be appreciated.

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Re: SIMPLE IRA with form 5305 (aka the bad one)
« Reply #1 on: August 02, 2018, 10:27:30 AM »
Also in a 5305-SIMPLE situation. In my case, my (now former) boss did not have the time, energy, or interest to make any changes to our plan, so we were stuck with the 5305 and American Century as our DFI. They aren't the worst as far as fees go, but their fee structure really stuck in my craw after having invested with Vanguard for years. Also, I'd rather line my own pockets instead of having money that should be in my account going to fund PGA golf events. But I'm not bitter about that or anything...

Do you receive a matching contribution from your employer? If so, does this match outweigh the loads/fees Oppenheimer charges for participating? Fees usually have to be pretty substantial to outweigh the benefits of matching+tax advantage of a SIMPLE. In my case, American Century charged high MER's and did not offer any low-fee, passive investing options, yet these higher costs were more than offset by the match and tax deduction I got from participating. Not optimal, and very frustrating that my (former) boss did not want to hear about how inefficient it was, but still the best option available.

I searched for this topic because I was literally about to call Vanguard to set up the "frozen SIMPLE", which although tedious seems to be the only way around the high-fees and/or loads that come with actively-managed funds. Mostly posting to commiserate at this point but I'll post back to let you know how it sorts out.

SilverAg47

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Re: SIMPLE IRA with form 5305 (aka the bad one)
« Reply #2 on: August 02, 2018, 03:39:15 PM »

Do you receive a matching contribution from your employer?


Yes, 3% match.  I plan on maxing it out to the full $12,500 though, so fees are a huge deal to me.  The lowest fee stock fund Oppenheimer offers with my SIMPLE IRA seems to be just under 1.00 ER, but the load fee is 5.75%!!!!  The lowest fund ER I see is a MM fund which is set at 0.64 ER, and no load.  This is the fund I plan to contribute to in Jan 2019 when I'm eligible, then set up the monthly transfers to my "frozen" SIMPLE IRA at Vanguard. 


I searched for this topic because I was literally about to call Vanguard to set up the "frozen SIMPLE", which although tedious seems to be the only way around the high-fees and/or loads that come with actively-managed funds. Mostly posting to commiserate at this point but I'll post back to let you know how it sorts out.

Yeah, bogleheads has some pretty good threads if you are looking for more stuff on the "frozen" SIMPLE IRA at Vanguard.  I have about a dozen bogleheads threads bookmarked for future reference when the time comes to set this thing up.  I can post them here if you need help. 

Are you already contributing to the SIMPLE IRA?  If it has been 2 years since your first contribution I believe you can avoid the "frozen" SIMPLE IRA account and go straight to a Traditional IRA.  Thanks for the commiseration, by the way.  At least I'll obtain first hand knowledge of how this whole thing works.

Arbitrage

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Re: SIMPLE IRA with form 5305 (aka the bad one)
« Reply #3 on: August 02, 2018, 04:52:02 PM »
Also in a 5305-SIMPLE situation. In my case, my (now former) boss did not have the time, energy, or interest to make any changes to our plan, so we were stuck with the 5305 and American Century as our DFI. They aren't the worst as far as fees go, but their fee structure really stuck in my craw after having invested with Vanguard for years. Also, I'd rather line my own pockets instead of having money that should be in my account going to fund PGA golf events. But I'm not bitter about that or anything...

Do you receive a matching contribution from your employer? If so, does this match outweigh the loads/fees Oppenheimer charges for participating? Fees usually have to be pretty substantial to outweigh the benefits of matching+tax advantage of a SIMPLE. In my case, American Century charged high MER's and did not offer any low-fee, passive investing options, yet these higher costs were more than offset by the match and tax deduction I got from participating. Not optimal, and very frustrating that my (former) boss did not want to hear about how inefficient it was, but still the best option available.

I searched for this topic because I was literally about to call Vanguard to set up the "frozen SIMPLE", which although tedious seems to be the only way around the high-fees and/or loads that come with actively-managed funds. Mostly posting to commiserate at this point but I'll post back to let you know how it sorts out.

As noted by the OP, if you have had the account open for 2 years, you can fill out the Vanguard IRA asset transfer kit and move your funds into a Vanguard Traditional IRA via trustee-to-trustee transfer.  We do this on a regular basis - from evil Oppenheimer in a similar situation to the OP.  One annoyance is that you can't do it online, presumably due to Vanguard needing to verify the 2 year rule has been fulfilled.  Vanguard also usually wants to talk to us on the phone after we've filed the paperwork.  As a result, we only do these transfers a couple of times a year.

SilverAg47

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Re: SIMPLE IRA with form 5305 (aka the bad one)
« Reply #4 on: August 02, 2018, 05:11:08 PM »

As noted by the OP, if you have had the account open for 2 years, you can fill out the Vanguard IRA asset transfer kit and move your funds into a Vanguard Traditional IRA via trustee-to-trustee transfer.  We do this on a regular basis - from evil Oppenheimer in a similar situation to the OP.  One annoyance is that you can't do it online, presumably due to Vanguard needing to verify the 2 year rule has been fulfilled.  Vanguard also usually wants to talk to us on the phone after we've filed the paperwork.  As a result, we only do these transfers a couple of times a year.

A fellow Oppenheimer Hater... Hi!  So for your first 2 years were you using OMBXX (Government Money Market Fund, 0.64 ER) to place your funds, then transfer to Vanguard?

Yeah, once I see how annoying everything is, I may end up front-loading my contributions and do a couple transfers early in the year so the bulk of the money gets over to Vanguard.  I would only be missing out on the growth of employer contributions for the rest of the year, which at 3% match would not amount to too much earning 0% effectively.

Have you gotten any backlash from your employer for not keeping your funds at Oppenheimer?

Arbitrage

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Re: SIMPLE IRA with form 5305 (aka the bad one)
« Reply #5 on: August 02, 2018, 06:51:21 PM »

As noted by the OP, if you have had the account open for 2 years, you can fill out the Vanguard IRA asset transfer kit and move your funds into a Vanguard Traditional IRA via trustee-to-trustee transfer.  We do this on a regular basis - from evil Oppenheimer in a similar situation to the OP.  One annoyance is that you can't do it online, presumably due to Vanguard needing to verify the 2 year rule has been fulfilled.  Vanguard also usually wants to talk to us on the phone after we've filed the paperwork.  As a result, we only do these transfers a couple of times a year.

A fellow Oppenheimer Hater... Hi!  So for your first 2 years were you using OMBXX (Government Money Market Fund, 0.64 ER) to place your funds, then transfer to Vanguard?

Yeah, once I see how annoying everything is, I may end up front-loading my contributions and do a couple transfers early in the year so the bulk of the money gets over to Vanguard.  I would only be missing out on the growth of employer contributions for the rest of the year, which at 3% match would not amount to too much earning 0% effectively.

Have you gotten any backlash from your employer for not keeping your funds at Oppenheimer?

I actually selected an International fund that was slightly less objectionable than some of the other offerings at the time.  Expense ratio was (and still is) north of 2%, but it's 'C' class and thus doesn't have a front-end load.  There is a redemption fee of 1% for funds held less than 12 months, and a quarterly account fee as well.  For the first two years, we weren't really in a financial position to invest more than the match, so the absolute dollar loss to fees wasn't so extreme. 

Unfortunately, with the way this employer has the match set up, we can't front load easily - the employer match is calculated each pay period, so if you didn't contribute that pay period, no match!  It's a bit of a dance to max out contributions exactly on the last paycheck. 

No backlash from employer on the transfers.  I don't know if the FA has complained to him or not, but we've not heard anything.  Almost nobody at the place contributes more than the match, though there is a new employee who is contributing the max and has complained about Oppenheimer; I've mentioned to my wife to relay to said employee that there are workarounds, but thus far haven't been taken up on my offer to assist.


Arbitrage

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Re: SIMPLE IRA with form 5305 (aka the bad one)
« Reply #6 on: August 02, 2018, 06:53:17 PM »

As noted by the OP, if you have had the account open for 2 years, you can fill out the Vanguard IRA asset transfer kit and move your funds into a Vanguard Traditional IRA via trustee-to-trustee transfer.  We do this on a regular basis - from evil Oppenheimer in a similar situation to the OP.  One annoyance is that you can't do it online, presumably due to Vanguard needing to verify the 2 year rule has been fulfilled.  Vanguard also usually wants to talk to us on the phone after we've filed the paperwork.  As a result, we only do these transfers a couple of times a year.

A fellow Oppenheimer Hater... Hi!  So for your first 2 years were you using OMBXX (Government Money Market Fund, 0.64 ER) to place your funds, then transfer to Vanguard?

Yeah, once I see how annoying everything is, I may end up front-loading my contributions and do a couple transfers early in the year so the bulk of the money gets over to Vanguard.  I would only be missing out on the growth of employer contributions for the rest of the year, which at 3% match would not amount to too much earning 0% effectively.

Have you gotten any backlash from your employer for not keeping your funds at Oppenheimer?

I actually selected an International fund that was slightly less objectionable than some of the other offerings at the time.  Expense ratio was (and still is) north of 2%, but it's 'C' class and thus doesn't have a front-end load.  There is a redemption fee of 1% for funds held less than 12 months, and a quarterly account fee as well.  For the first two years, we weren't really in a financial position to invest more than the match, so the absolute dollar loss to fees wasn't so extreme. 

Unfortunately, with the way this employer has the match set up, we can't front load easily - the employer match is calculated each pay period, so if you didn't contribute that pay period, no match!  Contributions also are set up as a % of pay (including bonuses/unexpected pay), and can't be set to a fixed amount, so it's a bit of a dance to max out contributions exactly on the last paycheck. 

No backlash from employer on the transfers.  I don't know if the FA has complained to him or not, but we've not heard anything.  Almost nobody at the place contributes more than the match, though there is a new employee who is contributing the max and has complained about Oppenheimer; I've mentioned to my wife to relay to said employee that there are workarounds, but thus far haven't been taken up on my offer to assist.

SilverAg47

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Re: SIMPLE IRA with form 5305 (aka the bad one)
« Reply #7 on: August 02, 2018, 08:50:23 PM »

Unfortunately, with the way this employer has the match set up, we can't front load easily - the employer match is calculated each pay period, so if you didn't contribute that pay period, no match!  It's a bit of a dance to max out contributions exactly on the last paycheck. 


From my understanding, your employer is not handling the match correctly if that is how they are doing it.  I was worried about matching issues as well when researching if I could do front-loading or not.  Are you sure that they don't match, or would they do a "true up" later in the year wherein you get your 3% match?  Here is what the IRS has to say about this:

"If an employee starts or stops salary reduction contributions in the middle of the year, can I make my 3% match based only on the compensation earned during the period they actually contributed?
No, you must base your SIMPLE IRA plan employer matching contribution on the employee’s entire calendar-year compensation, regardless of when the employee starts or stops contributing during the year. The maximum matching contribution is always 3% of the employees’ compensation for the entire calendar year. Matching contributions may be made on a per-pay-period basis, or by the due date of the employer’s tax return (including extensions).

Example:  Bob’s annual salary is $50,000 and he starts contributing to his employer’s SIMPLE IRA plan on September 1. He contributes $1,536 through December 31. Bob’s employer must match Bob’s contributions up to 3% of Bob’s calendar-year compensation, or $1,500 (3% of $50,000). It doesn’t matter that Bob only contributed to the plan during the last 4 months of the calendar year.

Example: John earns $60,000 a year. He made a salary reduction contribution of $12,000 to his employer’s SIMPLE IRA plan from January 1 to September 30. John’s employer is required to match John’s contribution up to 3% of his entire calendar-year compensation or $1,800 (3% of $60,000), even though John stopped contributing to the plan on September 30.

Example: Joe’s annual salary is $70,000 and he contributed 1% of his compensation, or $700, to his employer’s SIMPLE IRA plan. Joe’s employer must make a matching contribution of $700 because the employer is only required to match the amount Joe actually contributes during the year up to a maximum of 3% of his calendar-year compensation."

Source: https://www.irs.gov/retirement-plans/simple-ira-plan-faqs-contributions

Arbitrage

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Re: SIMPLE IRA with form 5305 (aka the bad one)
« Reply #8 on: August 03, 2018, 08:31:57 AM »
Thanks for that, I should look into it.  We do know from experience that's how it's been set up.  Thankfully, we only missed out on one paycheck match - it was the last paycheck, so there was certainly no true-up later. 

At this point, DW is actually in charge of processing the SIMPLE IRA match payment (she wasn't when we had problems earlier), so I could probably get her to fix any problems with the match.  On the other hand, she's pretty stressed out and overworked, and I don't want to personally add additional complications.  Still, it might be worth probing, especially if it could potentially get her company in hot water for doing things incorrectly. 

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Re: SIMPLE IRA with form 5305 (aka the bad one)
« Reply #9 on: August 03, 2018, 09:40:09 PM »

Do you receive a matching contribution from your employer?


Yes, 3% match.  I plan on maxing it out to the full $12,500 though, so fees are a huge deal to me.  The lowest fee stock fund Oppenheimer offers with my SIMPLE IRA seems to be just under 1.00 ER, but the load fee is 5.75%!!!!  The lowest fund ER I see is a MM fund which is set at 0.64 ER, and no load.  This is the fund I plan to contribute to in Jan 2019 when I'm eligible, then set up the monthly transfers to my "frozen" SIMPLE IRA at Vanguard. 


I searched for this topic because I was literally about to call Vanguard to set up the "frozen SIMPLE", which although tedious seems to be the only way around the high-fees and/or loads that come with actively-managed funds. Mostly posting to commiserate at this point but I'll post back to let you know how it sorts out.

Yeah, bogleheads has some pretty good threads if you are looking for more stuff on the "frozen" SIMPLE IRA at Vanguard.  I have about a dozen bogleheads threads bookmarked for future reference when the time comes to set this thing up.  I can post them here if you need help. 

Are you already contributing to the SIMPLE IRA?  If it has been 2 years since your first contribution I believe you can avoid the "frozen" SIMPLE IRA account and go straight to a Traditional IRA.  Thanks for the commiseration, by the way.  At least I'll obtain first hand knowledge of how this whole thing works.

Ouch. A 5.75% load should be criminal! If you plan on setting up the asset transfer to Vanguard, using the MM account as a way to work around getting nailed with high ER's and loads while still getting the match seems like a workable option.

Thanks for the help offer with those threads, I actually set the asset transfer in motion yesterday, the paperwork took me about 1.5 hours with some help from the Vanguard associate I spoke with. It turned out to be super easy, and the gentleman I spoke with even auto-filled a bunch of the forms for me to save some time. I mailed them the completed forms and they will take care of the entire process from there. There's an account maintenance fee of $25/year, which is waived when you become a Voyager client.

My situation is a bit different from yours because I am no longer contributing to the SIMPLE IRA at all (left that former job), so I was able to transfer the entire balance at once. Just as Arbitrage's post pointed out, the Vanguard guy advised that I should wait until the 2-year period is up, then roll those funds into another QRP (my tIRA, already with Vanguard) to unlock better expense ratios (SIMPLE IRA's with Vanguard only seem to offer Investor shares, not Admiral shares).

I'll post back with any further updates as they happen.