Roll Over an Unnecessarily Complicated SIMPLE IRA

My wife mentioned to her friends that I know a thing or two about personal finance and investing. One of her friends — I’ll call him Jake (not his real name) — changed jobs recently. He asked me to look at his retirement plan account from his previous employer.

I asked Jake what type of account it was. He didn’t know. He thought it was a Roth IRA but I told him an employer plan wouldn’t be a Roth IRA because a Roth IRA is a personal account. He sent me a recent statement, which shows it’s a SIMPLE IRA.

A SIMPLE IRA is an oddball in workplace retirement plans. It can only be offered by a small employer with no more than 100 employees. The employer sets up a SIMPLE IRA plan and each employee sets up a SIMPLE IRA under the plan.

Both the employee and the employer contribute to the account, as they do in a 401(k) plan. The annual contribution limit is lower. The employee contribution limit in a SIMPLE IRA is about 30% less than the employee contribution limit in a 401(k). The age-50+ catch-up contribution limit is less than half of the same limit in a 401(k). Don’t ask me why.

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