SIMPLE IRA - Should I Stay Or Should I Go?

Posted on January 24, 2007 by Him and tagged investments, retirement, simple_ira

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.

Comments/Trackbacks

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savvy | Jan 24, 2007

Move. You've got nothing to lose by moving your money to a better brokerage.

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Aimee | Jan 25, 2007

Option #1 does sound like the best thing. Plus, it's your money, you need to do what is best for it (and best for yourself), not what's best for the broker at your company.

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triple-e | Jan 25, 2007

How big is your company? Will your bosses know that Smith moved his money? Will they know that Him moved his money? Or that employee #78910 moved his money? If it is Him, go talk to your bosses and get their opinion, and their feelings. If it is Smith, I still might go, or talk to your manager see if they've heard of anyone doing it. If it is #78910, do whatever you want, because one drop isn't going to really change the ocean.

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The Travelin' Man | Jan 25, 2007

Is there a way that you can re-direct new contributions to Fidelity or Vanguard and then after a full year, move your previous contributions?

That is what I am in the process of doing with my own account. I am liquidating the assets in a target-date fund and making my own balanced portfolio. It will take almost a year to complete - but, it is all Fidelity to Fidelity, which makes things a little easier.

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