• SIMPLE IRA – Should I Stay Or Should I Go?

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    There have been numerous times on this blog that I have expressed dissatisfaction towards the investment options that are currently offered for my SIMPLE IRA plan. A few weeks ago I incorrectly stated that I could only invest in loaded fund of funds; on further review of all of the products, there was a mix of loaded mutual funds with pretty good expense ratios and loaded fund of funds with high expense ratios. Personally, I don’t like paying loads or excessive funds.

    SIMPLE IRA plans are different than 401(k) plans in that an employer can either require its employees to deposit their contributions at an employee selected financial institution (using Form 5305-SIMPLE [PDF]), or have its employees select to designate their own financial institutions for receiving contributions (using form Form 5304-SIMPLE [PDF]). My employer has chosen the latter, with us being able to choose our own financial institution for our contribution.

    Not everyone at my company understands this portability of our funds, with due reason. Our company brings in a guy from a brokerage firm to educate (sell?) new employees about the SIMPLE IRA. He’s brought in for one reason: he manages the money of our higher ups. Admittedly, when I started participating in the plan, I thought that this guy and his brokerage firm was the only way to go. I did notice that we were given the form to choose our own financial institution, but no one else in the office was able to help, so I signed up with the guy and his brokerage company (a downfall of working at a small company as we have no HR person).

    In the year and a half since I have had my SIMPLE IRA, I’ve learned that there are a few options with my plan:

    1. Pick up and move. There is no penalty for transferring SIMPLE IRA assets from one financial institution to another. So far I’ve looked at moving my SIMPLE IRA to either Vanguard, T. Rowe Price, or Schwab, on the basis of their reputations and investments. The problem? The 1% deferred sales charge on all contributions less than a year old, which would really only be a measly $60 or so. Also, I don’t want to burn any bridges with the high-ups by snubbing their guy of my business.

    2. After two years in the plan, transfer assets to a Traditional IRA. On a yearly basis, accumulate money in my SIMPLE IRA, then transfer funds (see how this works at Barry’s blog) The problem? The financial guy recommends class C shares with a deferred sales charge after that is waived after one year, of up to 1%. I don’t want to lose out on 1% of my assets every year. Alternatively, I could just let my contributions sit in a money market account and let it earn interest.

    3. Stay where I am. The problem? I don’t like paying for loaded funds. Also, it was never disclosed how much we’re paying this guy to “manage” our money. Fortunately, after looking over my statements it seems that it is a reasonable $35 a year.

    I am leaning towards option #1. I’d like to hear your thoughts.


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