Individual Retirement Accounts » SIMPLE IRAs

What is the difference between IRS 5304 and 5305?

The 5304 SIMPLE document indicates a non-designated financial institution, meaning a participant may choose where to invest their salary deferrals.

The 5305 SIMPLE document is referred to as a Designated Financial Institution document (DFI). This document allows the sponsor of the plan to designate one financial institution where all contributions will be made. If your employer signs a 5305 SIMPLE document and designates a specific institution as the Designated Financial Institution, all investments would have to be sent to that institution.

The 5305 SIMPLE restricts any investments which have a withdrawal penalty. Therefore, a contingent deferred sales charge on B or C share investments could not be charged if the employer adopted a 5305 SIMPLE document.

Remember-an employer must adopt a SIMPLE IRA. An employee cannot simply establish a SIMPLE IRA because he or she wishes to.