Save time with our cheat sheets, fact sheets, checklists & books!

February 19, 2009

Designated financial institution (DFI)

Your Guide

Share on print
Print
Share on facebook
Share on twitter
Share on pinterest
Share on linkedin

Definition

A financial institution ( such as a bank , insured credit union, savings and loan, or IRS approved non-bank custodians-such as a brokerage firm)  that agrees to  serve as trustee/custodian for a SIMPLE Plan and accept all employer and employee contributions under a SIMPLE IRA .

Definition

A financial institution ( such as a bank , insured credit union, savings and loan, or IRS approved non-bank custodians-such as a brokerage firm)  that agrees to  serve as trustee/custodian for a SIMPLE Plan and accept all employer and employee contributions under a SIMPLE IRA . Under the DFI rules, each plan participant must be  notified in writing that the participant’s balance may be transferred without cost or penalty to another SIMPLE IRA. See Additional Helpful Information below

A reasonable time period can be established, within which the transfer can occur without cost or penalty can be established. For instance, a participant will be  deemed to have been given a reasonable period of time in which to transfer his or her balance without cost or penalty if, for each calendar year, the participant has until the end of the 60-day period to request to transfer his or her balance attributable to SIMPLE IRA Plan contributions for the calendar year following that 60-day period (or, for the year in which an employee becomes eligible to make salary reduction contributions, for the balance of that year) and subsequent calendar years.

Use of the Form 5305-SIMPLE will subject the plan to the DFI rules.

An employer that does not want the SIMPLE to be subject to the DFI rules may use Form 5304-SIMPLE .

The financial institution usually determine which of the SIMPLE forms ( 5305-SIMPLE, 5304-SIMPLE, or even their own prototype-SIMPLE) can be used to establish a SIMPLE IRA plan with their institution.

Referring Cite

IRC. §408(p)(7), IRS Notice 98-4

Additional Helpful Information

  • A DFI is considered to have transferred a participant’s SIMPLE IRA balance without cost or penalty ,directly to a SIMPLE IRA (or, after the 2-year period to any IRA) at the financial institution specified by the participant, without cost of penalty if no liquidation, transaction, redemption or termination fee, or any commission, load (whether front-end or back-end) or surrender charge, or similar fee or charge is imposed with respect to the balance being transferred.

  • A transfer will not fail to be made without cost or penalty merely because contributions that a participant has elected to have transferred without cost or penalty are required to be invested in one specified investment option until transferred, even though a variety of investment options are available with respect to contributions that participants have not elected to transfer. ( IRS Notice 98-4)

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

Share on facebook
Share on twitter
Share on pinterest
Share on linkedin
Share on print
More

Keep Learning

Excess deferral

Definition Salary deferral contributions, contributions are limited to the lesser of the IRC § 402(g) limit or 100% of compensation. Salary deferral contributions in excess

Deduction

Definition A deduction is a Tax write-off which is allowed for contributions to traditional IRAs or employer sponsored plans. Individuals who are active participants are

Annual Addition Limit

Definition The annual Addition limit is the maximum amount that may be added to a defined contribution plan on behalf of a participant for any

Individual Retirement Arrangement (IRA)

Definition Individual retirement arrangement (IRA) is an umbrella term that covers individual retirement account and individual retirement annuity. These are retirement savings vehicles established by

Be among the first to know when

IRA Rules
Change