SIMPLE IRA TO IRA then back to SIMPLE during Divorce
I have a situation in which a client was divorced and received 50% of her ex-husbands SIMPLE IRA. The custodian opened an IRA in her name and transferred the ex-husbands SIMPLE IRA funds into the IRA. My client has a small SIMPLE IRA with her current employer and has a desire to have all of the money in a single account vs. separate IRA and SIMPLE IRA.
Can we transfer the new IRA (funded only from ex hubby SIMPLE) into her existing SIMPLE IRA? What are the pitfalls?
Permalink Submitted by Alan - IRA critic on Fri, 2019-06-21 16:15
First, such a transfer cannot take place until she has participated in her plan for 2 years. Once this requirement has been met, the question becomes whether consolidation is wise due to typical high fees and expenses of many SIMPLE IRAs, particularly 5305 SIMPLE plans with a DFI. Because of this many SIMPLE participants that have reached that 2 year waiting period transfer their SIMPLE IRA balance out to a TIRA in which lower cost and broader investment options can be controlled by the SIMPLE participant. Of course, these people would still need to maintain 2 accounts, but the balance would be concentrated in the TIRA. Client should determine what they are paying in the SIMPLE before determining which course of action is preferable. In other words, how much is she willing to pay for the simplification of a single account?
Permalink Submitted by Terrence Herr on Fri, 2019-06-21 16:28
Alan, thanks for the reply. I’ll rephrase the question:If the ex-husband was in his SIMPLE IRA for 2 Years (she has also been in her plan for 2 years) can the assets from the new IRA (which came from the ex husband’s SIMPLE last week) be transferred into her existing SIMPLE? Does she meet the 2 year requirement under a divorce?The fees aren’t relevant to the question, but they would be lower if the wife had everything in one SIMPLE IRA account.
Permalink Submitted by Alan - IRA critic on Fri, 2019-06-21 18:55
Starting to sound like funds from the ex’s SIMPLE was transferred into a transfer SIMPLE IRA for the client instead of a TIRA. But there should not be a problem. If a TIRA the on going SIMPLE can accept a transfer since she has met the 2 waiting period for her on going SIMPLE IRA. And if the ex’s SIMPLE funds were transferred into a transfer SIMPLE IRA which is now treated as client’s SIMPLE IRA, she would be transferring from SIMPLE to SIMPLE which would not require the transfer SIMPLE IRA to have met the 2 year waiting period.
Permalink Submitted by Terrence Herr on Wed, 2019-06-26 20:01
The ex hushand’s SIMPLE is now a TIRA in the wife’s name. SO we would then transfer the TIRA into her existing SIMPLE …since both the ex-husband’s SIMPLE and her SIMPLE are older than 2 years, this would be an acceptable transfer, correct?
Permalink Submitted by Barbara Norman on Thu, 2019-06-27 19:32
Do SIMPLE IRA’s pursuant to a divorce lose creditor protection, same as IRAs? Since this was placed into an IRA, does that make the account vulnerable to creditors? It may make sense to not co-mingle.
Permalink Submitted by Alan - IRA critic on Thu, 2019-06-27 20:11
IRAs have good creditor protection in the majority of states. Such states have their own creditor protection statutes and the federal BK Act protections are not needed in most cases. In states that DO use the federal BK Act, a SIMPLE IRA does not have a dollar limit in a BK filing, while an IRA does have an inflation protected limit. What state is this?