Employer to only match while using financial advisor/firm

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retired@50
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Re: Employer to only match while using financial advisor/firm

Post by retired@50 »

Lee_WSP wrote: Sat Jul 24, 2021 4:36 pm
Topgun514 wrote: Sat Jul 24, 2021 8:35 am]. We spoke with the advisor yesterday who mentioned the fee structure and we’re both fairly shocked at how high it is especially when she will likely use either a retirement date fund or a percentage mix of the 3 mains: SP500, International, bonds (60, 25, 15).
I can't find where you use the word AUM fee, but I believe you meant to say that the fund choices all have high expense ratios with a front load fee.

I'm not sure why offer others keep mentioning AUM fees.
In the OP, there is a reference to a ~2% fee.
Our question is threefold. Should we pay into the front load fee structure of about 5.75% per deposit, pay ~2% per year on the account total,
Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Lee_WSP
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Re: Employer to only match while using financial advisor/firm

Post by Lee_WSP »

retired@50 wrote: Sat Jul 24, 2021 5:26 pm
Lee_WSP wrote: Sat Jul 24, 2021 4:36 pm
Topgun514 wrote: Sat Jul 24, 2021 8:35 am]. We spoke with the advisor yesterday who mentioned the fee structure and we’re both fairly shocked at how high it is especially when she will likely use either a retirement date fund or a percentage mix of the 3 mains: SP500, International, bonds (60, 25, 15).
I can't find where you use the word AUM fee, but I believe you meant to say that the fund choices all have high expense ratios with a front load fee.

I'm not sure why offer others keep mentioning AUM fees.
In the OP, there is a reference to a ~2% fee.
Our question is threefold. Should we pay into the front load fee structure of about 5.75% per deposit, pay ~2% per year on the account total,
Regards,
Thanks for pointing that out. I can see the confusion. Nevertheless, it's most likely (has to be) expense ratios of the funds. An IRA is self directed.
SuzBanyan
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Re: Employer to only match while using financial advisor

Post by SuzBanyan »

BitTooAggressive wrote: Sat Jul 24, 2021 5:06 pm
Ryzen wrote: Sat Jul 24, 2021 11:55 am
BitTooAggressive wrote: Sat Jul 24, 2021 11:45 am
nolesrule wrote: Sat Jul 24, 2021 9:45 am What type of retirement plan is this?

This smells of kickbacks.
Agree. Lawsuit waiting to happen and with good justification at least morally, not sure about legally.
Unless a fantastic job it would be enough to get me to consider a job change. So unethical.
You're wrong. This is not a 401k. This is for small businesses that otherwise would offer no plan. Nothing unethical about it.
Does not appear to comply with irs regulations as explained.

https://www.irs.gov/retirement-plans/re ... s#employer
Based on further posts, the title seems to somewhat misstates the situation.

The plan is with a financial services company that provides a “free” advisor. I don’t think we have an answer yet as to whether this is a 5304 plan that would allow the employee to use a different financial services company prior to participating in the plan for 2 years. It is probably a 5305, which requires all employees use the same financial services company, with a right to roll out after 2 years. Nothing noncompliant per se with a 5305 plan.
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neurosphere
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Re: Employer to only match while using financial advisor/firm

Post by neurosphere »

So the summary so far is likely not that the employer is forcing any employee to have "use" and advisor to get the match. But rather the employer has simply selected a custodian+advisor for the SIMPLE IRA, and if anyone wants to contribute they have only that one choice for contributions. And then, that custodian/advisor just happens to have a fee structure of some kind (to be determined whether loads or AUM or something else).

I have experience with this in that my wife had a SIMPLE IRA. Employer chose the custodian/plan. Not only was the plan high fee, the advisor was less than helpful and not a nice person. When my wife came up on 2 years, she put in a request to transfer the funds to an IRA and the advisor refused, saying it was not allowed. This was back in 2003-ish when I knew much less about employer plans than I do now, and my search skills were worse. But with a lot of effort and kicking thing up to the advisors supervisors, we were able to do annual transfers for a few years until she got a new job. The advisor was always mad, and complained to the employer (buddies) and the employer tried to get us to "knock it off" with the transfers.

My point: educate yourself about the options/rules as you are doing and be diplomatic if you find resistance. But rules are rules and your money is YOUR money. :D
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
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Lee_WSP
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Re: Employer to only match while using financial advisor/firm

Post by Lee_WSP »

neurosphere wrote: Sat Jul 24, 2021 5:43 pm So the summary so far is likely not that the employer is forcing any employee to have "use" and advisor to get the match. But rather the employer has simply selected a custodian+advisor for the SIMPLE IRA, and if anyone wants to contribute they have only that one choice for contributions. And then, that custodian/advisor just happens to have a fee structure of some kind (to be determined whether loads or AUM or something else).
That may be the majority understanding, but would be inconsistent to how a simple IRA is run. The fee is most likely the expense ratios of the fund choices presented. It is yet unclear if there are other funds available, but an IRA is self directed and OPs wife can choose how and what to invest in given the choices within the IRA.
Last edited by Lee_WSP on Sat Jul 24, 2021 7:19 pm, edited 1 time in total.
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neurosphere
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Re: Employer to only match while using financial advisor/firm

Post by neurosphere »

Lee_WSP wrote: Sat Jul 24, 2021 6:27 pm
neurosphere wrote: Sat Jul 24, 2021 5:43 pm So the summary so far is likely not that the employer is forcing any employee to have "use" and advisor to get the match. But rather the employer has simply selected a custodian+advisor for the SIMPLE IRA, and if anyone wants to contribute they have only that one choice for contributions. And then, that custodian/advisor just happens to have a fee structure of some kind (to be determined whether loads or AUM or something else).
That may be the majority understanding, but would be inconsistent to how a simple IRA is run. The fee is most likely the expense ratios of the fund choices presented. It is yet unclear if there are other funds available, but an IRA is self directed and OPs wife can choose how and what to invest in given the choices within the IRA.

Edit
In fact I'm fairly sure an IRA must allow the individual to invest in ETFs.
I agree with what you write. When I said that there was only one choice for contributions, I meant one choice to whom contributions could be made as far as custodian, not restrictions on necessarily individual investments once the funds were with the custodian.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
SuzBanyan
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Re: Employer to only match while using financial advisor/firm

Post by SuzBanyan »

From the IRS: “Financial institutions authorized to hold and invest SIMPLE IRA plan contributions include banks, savings and loan associations, insurance companies, certain regulated investment companies, federally insured credit unions and brokerage firms. SIMPLE IRA plan contributions can be put into stocks, mutual funds and other similar types of investments. The investment options available at the institution where the SIMPLE IRA is located will determine what kinds of investment choices are available to the employee as he or she makes decisions about investing his or her SIMPLE IRA accounts.” https://www.irs.gov/retirement-plans/pl ... e-ira-plan
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Lee_WSP
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Re: Employer to only match while using financial advisor/firm

Post by Lee_WSP »

neurosphere wrote: Sat Jul 24, 2021 6:44 pm
Lee_WSP wrote: Sat Jul 24, 2021 6:27 pm
neurosphere wrote: Sat Jul 24, 2021 5:43 pm So the summary so far is likely not that the employer is forcing any employee to have "use" and advisor to get the match. But rather the employer has simply selected a custodian+advisor for the SIMPLE IRA, and if anyone wants to contribute they have only that one choice for contributions. And then, that custodian/advisor just happens to have a fee structure of some kind (to be determined whether loads or AUM or something else).
That may be the majority understanding, but would be inconsistent to how a simple IRA is run. The fee is most likely the expense ratios of the fund choices presented. It is yet unclear if there are other funds available, but an IRA is self directed and OPs wife can choose how and what to invest in given the choices within the IRA.

Edit
In fact I'm fairly sure an IRA must allow the individual to invest in ETFs.
I agree with what you write. When I said that there was only one choice for contributions, I meant one choice to whom contributions could be made as far as custodian, not restrictions on necessarily individual investments once the funds were with the custodian.
I believe we're on the same page. My comments weren't directed at you personally.
Jablean
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Re: Employer to only match while using financial advisor

Post by Jablean »

nedsaid wrote: Sat Jul 24, 2021 11:58 am
BitTooAggressive wrote: Sat Jul 24, 2021 11:45 am
nolesrule wrote: Sat Jul 24, 2021 9:45 am What type of retirement plan is this?

This smells of kickbacks.
Agree. Lawsuit waiting to happen and with good justification at least morally, not sure about legally.
Unless a fantastic job it would be enough to get me to consider a job change. So unethical.
Don't think kickbacks are happening here. It is a matter of a small employer trying to offer a retirement to employees without a lot of out of pocket costs. The employer probably went to a local advisor and asked for help setting up a plan. Small employers are focused on keeping the bills paid, payroll met, and keeping the doors open; they may not have gobs of time to shop around for a retirement plan.

So for employees of very small businesses, retirement plans are often far from ideal. One big reasons that states are starting to step in and provide retirement plans that small employers can participate in.
Normally they'd pick one advisor and require investments through them. That I think would be very common. This pick any firm as long as it's an advisor firm is weird - OP needs to get copy of plan not just word of mouth.
Humility101
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Re: Employer to only match while using financial advisor/firm

Post by Humility101 »

Please rescind my previous comments as we now have additional context. So long as the employer is not advocating a specific individual as the advisor this makes more sense for a small business and does not necessarily indicate a potential conflict of interest.
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Re: Employer to only match while using financial advisor/firm

Post by crefwatch »

Going back to the very first post, is there a choice between T Rowe Price and Edward Jones? I don’t think TRP has front-end fund charges.
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Re: Employer to only match while using financial advisor

Post by backpacker61 »

BitTooAggressive wrote: Sat Jul 24, 2021 11:45 am
nolesrule wrote: Sat Jul 24, 2021 9:45 am What type of retirement plan is this?

This smells of kickbacks.
Agree. Lawsuit waiting to happen and with good justification at least morally, not sure about legally.
Unless a fantastic job it would be enough to get me to consider a job change. So unethical.
Never ascribe to malice that which is adequately explained by incompetence.
Napoleon Bonaparte
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
GuyInFL
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Re: Employer to only match while using financial advisor/firm

Post by GuyInFL »

Definitely would only contribute to get the match. Additional funds could go in a traditional or more likely a Roth IRA.
nolesrule
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Re: Employer to only match while using financial advisor

Post by nolesrule »

backpacker61 wrote: Sun Jul 25, 2021 6:55 am
BitTooAggressive wrote: Sat Jul 24, 2021 11:45 am
nolesrule wrote: Sat Jul 24, 2021 9:45 am What type of retirement plan is this?

This smells of kickbacks.
Agree. Lawsuit waiting to happen and with good justification at least morally, not sure about legally.
Unless a fantastic job it would be enough to get me to consider a job change. So unethical.
Never ascribe to malice that which is adequately explained by incompetence.
Napoleon Bonaparte
It could be incompetence by the employer and malice by the SIMPLE IRA administrator. It just has to be spun a certain way.

If your employee uses our account and funds and advisor, we'll lower the cost per head for that employee (by passing the high plan fees off to the employee). Employer thinks, if they use the advisor, my costs will go down. So I'll pay out the match only if they use my advisor in order to get them to do that.
BitTooAggressive
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Re: Employer to only match while using financial advisor

Post by BitTooAggressive »

nolesrule wrote: Sun Jul 25, 2021 9:31 am
backpacker61 wrote: Sun Jul 25, 2021 6:55 am
BitTooAggressive wrote: Sat Jul 24, 2021 11:45 am
nolesrule wrote: Sat Jul 24, 2021 9:45 am What type of retirement plan is this?

This smells of kickbacks.
Agree. Lawsuit waiting to happen and with good justification at least morally, not sure about legally.
Unless a fantastic job it would be enough to get me to consider a job change. So unethical.
Never ascribe to malice that which is adequately explained by incompetence.
Napoleon Bonaparte
It could be incompetence by the employer and malice by the SIMPLE IRA administrator. It just has to be spun a certain way.
You’re probably right.
aristotelian
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Re: Employer to only match while using financial advisor

Post by aristotelian »

MishkaWorries wrote: Sat Jul 24, 2021 9:31 am I don't see how getting 3% match per year would justify 5.75% plus 2% fees per year in expenses. You'd lose 4.75% a year.
You might get a bigger tax benefit than that though. Just to clarify, is the 3% match 3% of salary or 3% if contribution? If the former, how much do you have to contribute?
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Re: Employer to only match while using financial advisor

Post by Lee_WSP »

nolesrule wrote: Sun Jul 25, 2021 9:31 am If your employee uses our account and funds and advisor, we'll lower the cost per head for that employee (by passing the high plan fees off to the employee). Employer thinks, if they use the advisor, my costs will go down. So I'll pay out the match only if they use my advisor in order to get them to do that.
That's not how a simple IRA works. I have no doubt that the business owner was wined and dined or otherwise incentivized to choose that particular provider, but once chosen, that's that. The rules are the same. The employer just provide either a 2% salary contribution to everyone or a 3% match with some leeway for not doing a match every x years. I don't recall the details of the last bit, but it's on the form used to start a 5305 if you want to look it up.
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Re: Employer to only match while using financial advisor

Post by nolesrule »

Lee_WSP wrote: Sun Jul 25, 2021 11:57 am
nolesrule wrote: Sun Jul 25, 2021 9:31 am If your employee uses our account and funds and advisor, we'll lower the cost per head for that employee (by passing the high plan fees off to the employee). Employer thinks, if they use the advisor, my costs will go down. So I'll pay out the match only if they use my advisor in order to get them to do that.
That's not how a simple IRA works. I have no doubt that the business owner was wined and dined or otherwise incentivized to choose that particular provider, but once chosen, that's that. The rules are the same. The employer just provide either a 2% salary contribution to everyone or a 3% match with some leeway for not doing a match every x years. I don't recall the details of the last bit, but it's on the form used to start a 5305 if you want to look it up.
Oh, I know that's not how it's supposed to work, but I wouldn't put it past an unscrupulous or unwitting employer to try to pull something like that anyway.
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Re: Employer to only match while using financial advisor

Post by Lee_WSP »

nolesrule wrote: Sun Jul 25, 2021 12:23 pm
Lee_WSP wrote: Sun Jul 25, 2021 11:57 am
nolesrule wrote: Sun Jul 25, 2021 9:31 am If your employee uses our account and funds and advisor, we'll lower the cost per head for that employee (by passing the high plan fees off to the employee). Employer thinks, if they use the advisor, my costs will go down. So I'll pay out the match only if they use my advisor in order to get them to do that.
That's not how a simple IRA works. I have no doubt that the business owner was wined and dined or otherwise incentivized to choose that particular provider, but once chosen, that's that. The rules are the same. The employer just provide either a 2% salary contribution to everyone or a 3% match with some leeway for not doing a match every x years. I don't recall the details of the last bit, but it's on the form used to start a 5305 if you want to look it up.
Oh, I know that's not how it's supposed to work, but I wouldn't put it past an unscrupulous or unwitting employer to try to pull something like that anyway.
Something like what?

With a 5305, you don't get the match and can't contribute if you refuse to use the chosen provider. It's a pretty simple plan.

It's no different from a 401k provider choice.
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Re: Employer to only match while using financial advisor/firm

Post by MrMars »

not to hijack a thread but I just want to make sure that I am understanding this correctly because this is a new thing I've apparently learned.

So, we can transfer the money from my wife's current employer's SIMPLE IRA plan (at Capitol Group, currently using American Funds 2035 TDF with an ER of 0.45%) to her traditional IRA that resides with Vanguard as long as it has been 2 years since her first contribution to the SIMPLE IRA? And save 30 basis points by using their TDF (0.14% ER) Am I understanding this correctly? I checked this link https://www.irs.gov/retirement-plans/si ... sfer-rules and this seems to support what I've read in this thread.

thanks for the input.
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Re: Employer to only match while using financial advisor

Post by ZWorkLess »

[/quote]It is either a 5304 SIMPLE or 5305 SIMPLE plan. She will have to find out which and that may not be easy at all. Sometimes even the "advisor" doesn't realize there are two possibilities.

The workaround for a 5304 is different from the workaround for a 5305. The solution starts with finding out which it is.
[/quote]

It should be easy to find out which type it is because the required annual form that offers the plan to employees defines it and includes the number right on the form, as well as naming the institution for 5305s.

I’d bet this is the more common 5305 plan (with a specific named institution), not a 5304 (under which the employees must choose their own institution.)
SuzBanyan
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Re: Employer to only match while using financial advisor/firm

Post by SuzBanyan »

MrMars wrote: Sun Jul 25, 2021 12:35 pm not to hijack a thread but I just want to make sure that I am understanding this correctly because this is a new thing I've apparently learned.

So, we can transfer the money from my wife's current employer's SIMPLE IRA plan (at Capitol Group, currently using American Funds 2035 TDF with an ER of 0.45%) to her traditional IRA that resides with Vanguard as long as it has been 2 years since her first contribution to the SIMPLE IRA? And save 30 basis points by using their TDF (0.14% ER) Am I understanding this correctly? I checked this link https://www.irs.gov/retirement-plans/si ... sfer-rules and this seems to support what I've read in this thread.

thanks for the input.
Yes. That is correct. If you want the funds to end up in a Vanguard IRA, call Vanguard and have them pull the funds from their end. I did this several years ago (although technically mine was to a Simple at Vanguard and later from the Vanguard Simple to a Vanguard IRA).
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Re: Employer to only match while using financial advisor/firm

Post by Lee_WSP »

MrMars wrote: Sun Jul 25, 2021 12:35 pm not to hijack a thread but I just want to make sure that I am understanding this correctly because this is a new thing I've apparently learned.

So, we can transfer the money from my wife's current employer's SIMPLE IRA plan (at Capitol Group, currently using American Funds 2035 TDF with an ER of 0.45%) to her traditional IRA that resides with Vanguard as long as it has been 2 years since her first contribution to the SIMPLE IRA? And save 30 basis points by using their TDF (0.14% ER) Am I understanding this correctly? I checked this link https://www.irs.gov/retirement-plans/si ... sfer-rules and this seems to support what I've read in this thread.

thanks for the input.
Yes. You can transfer to another simple IRA before the two year period as well.
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Re: Employer to only match while using financial advisor/firm

Post by MrMars »

SuzBanyan wrote: Sun Jul 25, 2021 1:55 pm
MrMars wrote: Sun Jul 25, 2021 12:35 pm not to hijack a thread but I just want to make sure that I am understanding this correctly because this is a new thing I've apparently learned.

So, we can transfer the money from my wife's current employer's SIMPLE IRA plan (at Capitol Group, currently using American Funds 2035 TDF with an ER of 0.45%) to her traditional IRA that resides with Vanguard as long as it has been 2 years since her first contribution to the SIMPLE IRA? And save 30 basis points by using their TDF (0.14% ER) Am I understanding this correctly? I checked this link https://www.irs.gov/retirement-plans/si ... sfer-rules and this seems to support what I've read in this thread.

thanks for the input.
Yes. That is correct. If you want the funds to end up in a Vanguard IRA, call Vanguard and have them pull the funds from their end. I did this several years ago (although technically mine was to a Simple at Vanguard and later from the Vanguard Simple to a Vanguard IRA).
great. thanks for the insight and the instruction on how to proceed.
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Re: Employer to only match while using financial advisor/firm

Post by MrMars »

Lee_WSP wrote: Sun Jul 25, 2021 2:04 pm
MrMars wrote: Sun Jul 25, 2021 12:35 pm not to hijack a thread but I just want to make sure that I am understanding this correctly because this is a new thing I've apparently learned.

So, we can transfer the money from my wife's current employer's SIMPLE IRA plan (at Capitol Group, currently using American Funds 2035 TDF with an ER of 0.45%) to her traditional IRA that resides with Vanguard as long as it has been 2 years since her first contribution to the SIMPLE IRA? And save 30 basis points by using their TDF (0.14% ER) Am I understanding this correctly? I checked this link https://www.irs.gov/retirement-plans/si ... sfer-rules and this seems to support what I've read in this thread.

thanks for the input.
Yes. You can transfer to another simple IRA before the two year period as well.
and learning things like this is why I read these boards. I would never have realized transferring it to a tIRA was a possibility. Thank you!
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Re: Employer to only match while using financial advisor

Post by nolesrule »

Lee_WSP wrote: Sun Jul 25, 2021 12:28 pm
Something like what?

With a 5305, you don't get the match and can't contribute if you refuse to use the chosen provider. It's a pretty simple plan.

It's no different from a 401k provider choice.
The OP didn't say anything about not being able to contribute. Just not getting the match.
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Lee_WSP
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Re: Employer to only match while using financial advisor

Post by Lee_WSP »

nolesrule wrote: Sun Jul 25, 2021 2:36 pm
Lee_WSP wrote: Sun Jul 25, 2021 12:28 pm
Something like what?

With a 5305, you don't get the match and can't contribute if you refuse to use the chosen provider. It's a pretty simple plan.

It's no different from a 401k provider choice.
The OP didn't say anything about not being able to contribute. Just not getting the match.
I don't recall reading that, can you quote the relevant part?

Obviously if they don't contribute, you don't get a match. It's exactly like a safe harbor 401k.
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Re: Employer to only match while using financial advisor/firm

Post by Lee_WSP »

MrMars wrote: Sun Jul 25, 2021 2:16 pm
Lee_WSP wrote: Sun Jul 25, 2021 2:04 pm
MrMars wrote: Sun Jul 25, 2021 12:35 pm not to hijack a thread but I just want to make sure that I am understanding this correctly because this is a new thing I've apparently learned.

So, we can transfer the money from my wife's current employer's SIMPLE IRA plan (at Capitol Group, currently using American Funds 2035 TDF with an ER of 0.45%) to her traditional IRA that resides with Vanguard as long as it has been 2 years since her first contribution to the SIMPLE IRA? And save 30 basis points by using their TDF (0.14% ER) Am I understanding this correctly? I checked this link https://www.irs.gov/retirement-plans/si ... sfer-rules and this seems to support what I've read in this thread.

thanks for the input.
Yes. You can transfer to another simple IRA before the two year period as well.
and learning things like this is why I read these boards. I would never have realized transferring it to a tIRA was a possibility. Thank you!
Speaking of a second simple, if she or you had any 1099 income, I'd suggest looking into starting a simple plan yourselves at Fidelity or Vanguard.
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retiredjg
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Re: Employer to only match while using financial advisor/firm

Post by retiredjg »

MrMars wrote: Sun Jul 25, 2021 12:35 pm not to hijack a thread but I just want to make sure that I am understanding this correctly because this is a new thing I've apparently learned.

So, we can transfer the money from my wife's current employer's SIMPLE IRA plan (at Capitol Group, currently using American Funds 2035 TDF with an ER of 0.45%) to her traditional IRA that resides with Vanguard as long as it has been 2 years since her first contribution to the SIMPLE IRA? And save 30 basis points by using their TDF (0.14% ER) Am I understanding this correctly? I checked this link https://www.irs.gov/retirement-plans/si ... sfer-rules and this seems to support what I've read in this thread.

thanks for the input.
Yes. You understand correctly. And they cannot charge you anything to do this.

Be sure that you do a trustee to trustee transfer (check made out to the next custodian for the benefit of your wife) instead of a 60 day rollover (check made out to your wife) so that you can do the transfer more than once a year.
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Re: Employer to only match while using financial advisor

Post by retiredjg »

ZWorkLess wrote: Sun Jul 25, 2021 1:42 pm
It is either a 5304 SIMPLE or 5305 SIMPLE plan. She will have to find out which and that may not be easy at all. Sometimes even the "advisor" doesn't realize there are two possibilities.

The workaround for a 5304 is different from the workaround for a 5305. The solution starts with finding out which it is.
It should be easy to find out which type it is because the required annual form that offers the plan to employees defines it and includes the number right on the form, as well as naming the institution for 5305s.

I’d bet this is the more common 5305 plan (with a specific named institution), not a 5304 (under which the employees must choose their own institution.)
It would be easy if they were using the IRS form because the number is right there at the top of the page. :D

However, the companies that do this use their own pre-printed forms. We have been told more than once that the number designating the type of plan is not easily found or nowhere to be found.

I too suspect this is a 5305 plan but until we hear back from the original poster, there is no way to know.
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MrMars
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Re: Employer to only match while using financial advisor/firm

Post by MrMars »

Lee_WSP wrote: Sun Jul 25, 2021 2:47 pm
MrMars wrote: Sun Jul 25, 2021 2:16 pm
Lee_WSP wrote: Sun Jul 25, 2021 2:04 pm
MrMars wrote: Sun Jul 25, 2021 12:35 pm not to hijack a thread but I just want to make sure that I am understanding this correctly because this is a new thing I've apparently learned.

So, we can transfer the money from my wife's current employer's SIMPLE IRA plan (at Capitol Group, currently using American Funds 2035 TDF with an ER of 0.45%) to her traditional IRA that resides with Vanguard as long as it has been 2 years since her first contribution to the SIMPLE IRA? And save 30 basis points by using their TDF (0.14% ER) Am I understanding this correctly? I checked this link https://www.irs.gov/retirement-plans/si ... sfer-rules and this seems to support what I've read in this thread.

thanks for the input.
Yes. You can transfer to another simple IRA before the two year period as well.
and learning things like this is why I read these boards. I would never have realized transferring it to a tIRA was a possibility. Thank you!
Speaking of a second simple, if she or you had any 1099 income, I'd suggest looking into starting a simple plan yourselves at Fidelity or Vanguard.
we do occasionally have the opportunity for 1099 work. I'll look into this further. Thank you.
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MrMars
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Re: Employer to only match while using financial advisor/firm

Post by MrMars »

retiredjg wrote: Sun Jul 25, 2021 2:59 pm
MrMars wrote: Sun Jul 25, 2021 12:35 pm not to hijack a thread but I just want to make sure that I am understanding this correctly because this is a new thing I've apparently learned.

So, we can transfer the money from my wife's current employer's SIMPLE IRA plan (at Capitol Group, currently using American Funds 2035 TDF with an ER of 0.45%) to her traditional IRA that resides with Vanguard as long as it has been 2 years since her first contribution to the SIMPLE IRA? And save 30 basis points by using their TDF (0.14% ER) Am I understanding this correctly? I checked this link https://www.irs.gov/retirement-plans/si ... sfer-rules and this seems to support what I've read in this thread.

thanks for the input.
Yes. You understand correctly. And they cannot charge you anything to do this.

Be sure that you do a trustee to trustee transfer (check made out to the next custodian for the benefit of your wife) instead of a 60 day rollover (check made out to your wife) so that you can do the transfer more than once a year.
more good info. thank you!
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celia
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Re: Employer to only match while using financial advisor

Post by celia »

BitTooAggressive wrote: Sat Jul 24, 2021 5:06 pm
Ryzen wrote: Sat Jul 24, 2021 11:55 am
BitTooAggressive wrote: Sat Jul 24, 2021 11:45 am
nolesrule wrote: Sat Jul 24, 2021 9:45 am What type of retirement plan is this?

This smells of kickbacks.
Agree. Lawsuit waiting to happen and with good justification at least morally, not sure about legally.
Unless a fantastic job it would be enough to get me to consider a job change. So unethical.
You're wrong. This is not a 401k. This is for small businesses that otherwise would offer no plan. Nothing unethical about it.
Does not appear to comply with irs regulations as explained.

https://www.irs.gov/retirement-plans/re ... s#employer
Specifically, what in this SIMPLE IRA does not seem to comply with the IRS regs? So far, everything about this plan looks fine to me.

I suspect that not only is this a small company, but that the plan has not been in effect very long. I also suspect that many employees are low paid, and that the front load is meant to cover the custodian’s fees. Until the total assets under management reach a certain threshold (say one million dollars), the fees will be high so the custodian who is servicing this plan can recoup their costs. I imagine the fees will drop at a certain point and then drop later at another point.

OP, A good question to ask is at what point(s) do the fees drop and where is the company currently in relation to that? And what will the fees drop to at that point(s).

Another thing to consider is if many others are contributing. If very few are, it will take a long time to reach any ‘level’ where the fees change. If the company is quite profitable, maybe the employees can ask the employer to cover the fees, especially if that is the reason many are not participating.
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Re: Employer to only match while using financial advisor

Post by BitTooAggressive »

celia wrote: Sun Jul 25, 2021 4:03 pm
BitTooAggressive wrote: Sat Jul 24, 2021 5:06 pm
Ryzen wrote: Sat Jul 24, 2021 11:55 am
BitTooAggressive wrote: Sat Jul 24, 2021 11:45 am
nolesrule wrote: Sat Jul 24, 2021 9:45 am What type of retirement plan is this?

This smells of kickbacks.
Agree. Lawsuit waiting to happen and with good justification at least morally, not sure about legally.
Unless a fantastic job it would be enough to get me to consider a job change. So unethical.
You're wrong. This is not a 401k. This is for small businesses that otherwise would offer no plan. Nothing unethical about it.
Does not appear to comply with irs regulations as explained.

https://www.irs.gov/retirement-plans/re ... s#employer
Specifically, what in this SIMPLE IRA does not seem to comply with the IRS regs? So far, everything about this plan looks fine to me.

I suspect that not only is this a small company, but that the plan has not been in effect very long. I also suspect that many employees are low paid, and that the front load is meant to cover the custodian’s fees. Until the total assets under management reach a certain threshold (say one million dollars), the fees will be high so the custodian who is servicing this plan can recoup their costs. I imagine the fees will drop at a certain point and then drop later at another point.

OP, A good question to ask is at what point(s) do the fees drop and where is the company currently in relation to that? And what will the fees drop to at that point(s).

Another thing to consider is if many others are contributing. If very few are, it will take a long time to reach any ‘level’ where the fees change. If the company is quite profitable, maybe the employees can ask the employer to cover the fees, especially if that is the reason many are not participating.
I think I was confused by the original post about using a financial advisor. I took the use being like you had to use one but the original poster was just referring to whoever administered.
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teen persuasion
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Re: Employer to only match while using financial advisor

Post by teen persuasion »

celia wrote: Sun Jul 25, 2021 4:03 pm
BitTooAggressive wrote: Sat Jul 24, 2021 5:06 pm
Ryzen wrote: Sat Jul 24, 2021 11:55 am
BitTooAggressive wrote: Sat Jul 24, 2021 11:45 am
nolesrule wrote: Sat Jul 24, 2021 9:45 am What type of retirement plan is this?

This smells of kickbacks.
Agree. Lawsuit waiting to happen and with good justification at least morally, not sure about legally.
Unless a fantastic job it would be enough to get me to consider a job change. So unethical.
You're wrong. This is not a 401k. This is for small businesses that otherwise would offer no plan. Nothing unethical about it.
Does not appear to comply with irs regulations as explained.

https://www.irs.gov/retirement-plans/re ... s#employer
Specifically, what in this SIMPLE IRA does not seem to comply with the IRS regs? So far, everything about this plan looks fine to me.

I suspect that not only is this a small company, but that the plan has not been in effect very long. I also suspect that many employees are low paid, and that the front load is meant to cover the custodian’s fees. Until the total assets under management reach a certain threshold (say one million dollars), the fees will be high so the custodian who is servicing this plan can recoup their costs. I imagine the fees will drop at a certain point and then drop later at another point.

OP, A good question to ask is at what point(s) do the fees drop and where is the company currently in relation to that? And what will the fees drop to at that point(s).

Another thing to consider is if many others are contributing. If very few are, it will take a long time to reach any ‘level’ where the fees change. If the company is quite profitable, maybe the employees can ask the employer to cover the fees, especially if that is the reason many are not participating.
The Wells Fargo rep told me our fees would drop after 10 years in a fund - at that point the 12b-1 fee is dropped. I believe that was .25. He was touting this to me as a perk, vs a different class with a front load fee. :annoyed

Yeah, dude, not planning on working THAT long. And another coworker is 65, she's not planning on staying that long, either.
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Re: Employer to only match while using financial advisor/firm

Post by pkcrafter »

Lots of speculating going on here, and it simply may be due to the fact that the OP doesn't fully understand the situation. Do we know what form of simple IRA this is? We got hung up way back when front-end loads were mentioned. TRPrice does not offer A class (front load) funds, so I'm still confused on what is being offered. Is Edward Jones advisor service mandatory? Are TRPrice funds available without additional costs? Is the company compliant with Simple IRA rules?


Paul
Last edited by pkcrafter on Mon Jul 26, 2021 10:36 am, edited 1 time in total.
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djpeteski
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Re: Employer to only match while using financial advisor/firm

Post by djpeteski »

What is the likelihood of your wife finding a different job? It would seem the 3% match is a losing proposition over the long and short term.

Going to an employer with a unconditional match might be very lucrative.
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retiredjg
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Re: Employer to only match while using financial advisor/firm

Post by retiredjg »

pkcrafter wrote: Mon Jul 26, 2021 8:51 am Lots of speculating going on here, and it simply may be due to the fact that the OP doesn't fully understand the situation. Do we know what form of simple IRA this is? We got hung up way back when front-end loads were mentioned. TRPrice does not offer A class (front load) funds, so I still confused on what is being offered. Is Edward Jones advisor service mandatory? Are TRPrice funds available without additional costs? Is the company compliant with Simple IRA rules?
We pretty much don't know anything other than it is a SIMPLE IRA. My guess is Edward Jones 5305 (designated financial institution). Maybe since it is Monday more information will be forthcoming today or tomorrow. :happy
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Topgun514
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Re: Employer to only match while using financial advisor/firm

Post by Topgun514 »

Thanks again everyone. We're planning on getting an exact print out of what the associated fees are. I don't think they have been properly relayed to us in our initial call. We also we're not told what investments are available- solely that we can invest in anything, but again, when we asked about fees there was no direct discussion on this much to our dismay. At this point, we are still aiming to have our investments in to get the full 3% match and keep it simple (either a retirement year fund, 2050- or a 60%, 25%, 15 % SP500, Int'l, and Bonds) at whichever would give us the least fees.

The idea of keeping the holdings in cash and moving money out after 2 years isn't off the table, but we are firm believers in the psychology behind investing and simplicity being key. It's unfortunate that the financial industry can blindly take fees when we essentially are running our portfolios but we will try to maximize between the lesser of two evils. One being the psychology of investing and being able to be hands off, which we value, and the other being exorbitant fees.

The remaining percent that she provides for retirement we are planning to go to a Roth IRA that she controls (likely FSKAX/VTSMX). Because I max out my pre-tax TSP and some into a personal Roth, plus a pension (30% of total salary) and will receive SS when we are older- we are anticipating the need for more tax-free availability from a Roth, and we won't pay the high fees to have it managed by anyone.
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retiredjg
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Re: Employer to only match while using financial advisor/firm

Post by retiredjg »

Topgun514, what I'm going to ask is contrary to the usual way we do things. When you get the information, please start a new thread where all of this can be discussed without being lost in the 90 (mostly irrelevant) comments that already exist in this thread.

There are ways to work around this SIMPLE IRA problem but nobody can suggest anything without first knowing if this is a 5304 SIMPLE IRA or a 5305 SIMPLE IRA. The "solution" for one is not the same as the "Solution" for the other.

You apparently are hesitant to mention the investment firm involved here but that would be very helpful to know if it is a national chain. If it is an independent, you may not want to mention the name.

Please include her approximate salary in the new thread.

If possible, include the investment choices or at least some of them.
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Re: Employer to only match while using financial advisor

Post by retiredjg »

nedsaid wrote: Sat Jul 24, 2021 11:24 am
retiredjg wrote: Sat Jul 24, 2021 10:48 am
nedsaid wrote: Sat Jul 24, 2021 10:11 am The Assets Under Management Fee and up front commissions are either/or normally. In other words, if you are paying commissions there should be no Assets Under Management fee. If you are under an AUM arrangement, there should be no commissions.
Not in a SIMPLE IRA. At least not after the fiduciary rule happened and then partially unhappened...makes one's head spin.

To get around the fiduciary rule, Edward Jones instituted an AUM and imposed front end loads on every fund except the money market fund. However, I remember the AUM being less than 2% .... maybe 1.3%? It has been awhile. I don't know what they are doing now.
Edward Jones AUM fee is 1.35%. I don't believe that they charge that plus 5.75% commissions even in a SIMPLE IRA. Normally the advisor compensation model is AUM or Commissions but not both for the same account. So an advisor might have client accounts that are Commission based and the same advisor might have other client accounts that are AUM. I can't imagine that an advisor would charge both AUM and Commission on the same account. Last I checked, Jones charges about 2% commission for Stocks and ETFs and loads on mutual funds for commission based accounts. On AUM accounts, they do have proprietary low cost funds that they use.

I have been checking into this because a couple of family members have accounts there.

Do you have a source?
Well it took some time... :(

I've gone back through all the 2015 - 2017 threads that I could find on this issue and you are right. EF was charging loads in their SIMPLE IRAs and they dropped loads and started charging an AUM fee with their new and improved ( :shock: :shock: :shock: ) "Guided Solutions" program when the fiduciary rules went into effect. (Talk about well-intentioned legislation going bad...investors got the short end on that one.)

At the time, only the money market fund was not included in the AUM fee in the Guided Solutions plan. I had mis-remembered it as only the money market fund didn't have a load.

Then some of the fiduciary rules were dismantled and it was never clear to me what got sent to the wayside and what was left intact.

I know that Guided Solutions is still a current option at EJ, but do not know how it might be different from what I read back then.
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Re: Employer to only match while using financial advisor/firm

Post by Sahara »

Topgun514 wrote: Mon Jul 26, 2021 12:02 pm Thanks again everyone. We're planning on getting an exact print out of what the associated fees are. I don't think they have been properly relayed to us in our initial call. We also we're not told what investments are available- solely that we can invest in anything, but again, when we asked about fees there was no direct discussion on this much to our dismay. At this point, we are still aiming to have our investments in to get the full 3% match and keep it simple (either a retirement year fund, 2050- or a 60%, 25%, 15 % SP500, Int'l, and Bonds) at whichever would give us the least fees.

The idea of keeping the holdings in cash and moving money out after 2 years isn't off the table, but we are firm believers in the psychology behind investing and simplicity being key. It's unfortunate that the financial industry can blindly take fees when we essentially are running our portfolios but we will try to maximize between the lesser of two evils. One being the psychology of investing and being able to be hands off, which we value, and the other being exorbitant fees.

The remaining percent that she provides for retirement we are planning to go to a Roth IRA that she controls (likely FSKAX/VTSMX). Because I max out my pre-tax TSP and some into a personal Roth, plus a pension (30% of total salary) and will receive SS when we are older- we are anticipating the need for more tax-free availability from a Roth, and we won't pay the high fees to have it managed by anyone.
I can't help but hope this is a misunderstanding stemming from a conversation with someone at the investment firm.
Was this by chance call center rep? Since they get paid commission to bring outside money over I can't help but think that the upfront sales charge might be in relation to bringing in or adding investments outside of the employer plan.

FWIW I have a SIMPLE IRA with TRowe Price. My employer's contribution goes into the money market fund. Then I move it to the broad-based index fund with an ER of .30. The only fee would be $20 per year if I didn't consent to electronic delivery of communication.
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nedsaid
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Re: Employer to only match while using financial advisor

Post by nedsaid »

retiredjg wrote: Mon Jul 26, 2021 1:07 pm
nedsaid wrote: Sat Jul 24, 2021 11:24 am
retiredjg wrote: Sat Jul 24, 2021 10:48 am
nedsaid wrote: Sat Jul 24, 2021 10:11 am The Assets Under Management Fee and up front commissions are either/or normally. In other words, if you are paying commissions there should be no Assets Under Management fee. If you are under an AUM arrangement, there should be no commissions.
Not in a SIMPLE IRA. At least not after the fiduciary rule happened and then partially unhappened...makes one's head spin.

To get around the fiduciary rule, Edward Jones instituted an AUM and imposed front end loads on every fund except the money market fund. However, I remember the AUM being less than 2% .... maybe 1.3%? It has been awhile. I don't know what they are doing now.
Edward Jones AUM fee is 1.35%. I don't believe that they charge that plus 5.75% commissions even in a SIMPLE IRA. Normally the advisor compensation model is AUM or Commissions but not both for the same account. So an advisor might have client accounts that are Commission based and the same advisor might have other client accounts that are AUM. I can't imagine that an advisor would charge both AUM and Commission on the same account. Last I checked, Jones charges about 2% commission for Stocks and ETFs and loads on mutual funds for commission based accounts. On AUM accounts, they do have proprietary low cost funds that they use.

I have been checking into this because a couple of family members have accounts there.

Do you have a source?
Well it took some time... :(

I've gone back through all the 2015 - 2017 threads that I could find on this issue and you are right. EF was charging loads in their SIMPLE IRAs and they dropped loads and started charging an AUM fee with their new and improved ( :shock: :shock: :shock: ) "Guided Solutions" program when the fiduciary rules went into effect. (Talk about well-intentioned legislation going bad...investors got the short end on that one.)

At the time, only the money market fund was not included in the AUM fee in the Guided Solutions plan. I had mis-remembered it as only the money market fund didn't have a load.

Then some of the fiduciary rules were dismantled and it was never clear to me what got sent to the wayside and what was left intact.

I know that Guided Solutions is still a current option at EJ, but do not know how it might be different from what I read back then.
Thanks so much for doing the research. Yes, sometimes investors are better off just paying the loads rather than a high AUM Fee. I remember a guy in my city who was an Edward Jones Representative, he put his clients in American Funds and if the clients invested for the long term and held on, they would have done fairly well. The breakeven point where the AUM would be more expensive than the up front load is about 4.3 years. In some situations, the commission model ain't so bad.

Of course, if you invest on your own, you can save that load.
A fool and his money are good for business.
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