Author Topic: Dumb Question about SIMPLE IRA  (Read 1937 times)


  • 5 O'Clock Shadow
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Dumb Question about SIMPLE IRA
« on: December 06, 2016, 11:26:35 AM »
Hopefully this is a dumb question that has an easy answer.  My SO/DW/whatever abrev is trending, just got a new job at a smaller college.  The college offers a SIMPLE IRA rather than a 401k, which is fine, but in setting everything up, things seemed to get a little hairy.  Basically, SO/DW/etc was told to just call up her own financial institution and set up the SIMPLE IRA account, then give the account number to HR so they can ensure the deposits + employer match get direct deposited.

My own quick research into and various financial institutions (Fidelity, Vanguard, etc) seems to imply that the employer should be setting up a plan for employees to contribute to.  Alot of the forms and FAQ's seem to come from an employer perspective rather than an employee/contributor/participant perspective.

Is this really legit?  Should my SO/DW/etc just call up Vanguard and say, "Yeap, I work for whoever now and I need a SIMPLE IRA, kthx!"

Or do we need to poke around in the college more and try to figure out who (if anyone) is administering the plan?

Or am I thinking too hard about this?

Also, I'm getting info 3rd hand through SO/DW/etc, who is terrible about details of this variety.  What types of pointed questions should I be asking her, (or telling her to ask of others)?

Thanks fellas!


  • 5 O'Clock Shadow
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Re: Dumb Question about SIMPLE IRA
« Reply #1 on: December 06, 2016, 12:11:18 PM »
This is legit.  The SIMPLE IRA is literally like any other IRA that you own, but the money is deposited pre-tax by the company.  It is an account that you hold and administer.

Her company is not involved in administering the SIMPLE IRA beyond making deposits.  This is why the SIMPLE IRA has much lower overhead for the company than a 401k.  They are not selecting funds, managing balances, or carrying liability. 

There are lots of benefits in this regard for your wife as well.  She can have better investments at lower cost than most (I almost want to say ALL) 401k plans.

Additionally, she can roll over her SIMPLE IRA into a traditional IRA or ROTH IRA prior to her employment ending.  While this may not be important today, once you have accumulated some holdings it can make a difference.  I recently rolled my SIMPLE IRA into a traditional IRA with Vanguard because the SIMPLE IRA is limited to Investor grade index funds, while the traditional IRA was able to invest in stocks and Admiral grade index funds.  This meant the difference between 0.16% and 0.05% overhead in their S&P 500 index fund.

The main drawback is the lower contribution limits.