Description - IRA Custodian
Must Furnish by October
2017 for 2018
What are a financial institution's duties
if it is the custodian or trustee of SIMPLE
IRA funds? After a SIMPLE IRA has been
established at an institution, it is the
institution's duty to provide a Summary
Description each year within a reasonable
period of time before the employees'
60-day election period. CWF
believes that providing the Summary
Description 30 days prior to the election
period would be considered "reasonable."
The actual IRS wording is that the
Summary Description must be provided
"early enough so that the employer can
meet its notice obligation." You will want
to furnish the Summary Description to
the employer in September or the first
week of October. The employer is
required to furnish the summary description
to its employees before the employees'
60-day election period.
IRS Notice 98-4 provides the rules and
procedures for SIMPLEs. This notice is
reproduced in CWF's IRA Procedures
The Summary Description to be furnished
by the SIMPLE IRA
custodian/trustee to the sponsoring
employer depends upon what form the
employer used to establish the SIMPLE
The employer may either complete
Form 5305-SIMPLE (where all employees'
SIMPLE IRAs are established at the
same employer-designated financial
institution) or Form 5304-SIMPLE (where
the employer allows the employees to
establish the SIMPLE IRA at the financial
institution of his or her choice).
There will be one Summary Description
if the employer has used the 5305-SIMPLE
form. There will be another Summary
Description if the employer has used the
5304-SIMPLE form. If you are a user of
CWF forms, these forms will be Form
918-A and 918-B.
The general rule is that the SIMPLE IRA
custodian/trustee is required to furnish
the summary description to the employer
This Summary Description will only
be partially completed. The employer
will be required to complete it and then
furnish it to its employees. The employer
needs to indicate for the upcoming 18
year the rate of its matching contribution
or that it will be making the non-elective
contribution equal to 2% of compensation.
However, in the situation where the
employer has completed the Form 5304-SIMPLE, the IRS understands that many
times the SIMPLE IRA custodian/trustee
will have a minimal relationship with the
employer. It may well be that only one
employee of the employer establishes a
SIMPLE IRA with a financial institution.
In this situation, the IRS allows the financial
institution to comply with the Summary
Description rules by using an alternative
To comply with the alternative method,
the SIMPLE IRA custodian/trustee is to
furnish the individual SIMPLE IRA
accountholder the following
- A current 5304-SIMPLE: This could be filled out by the
employer, or it could be the blank form
- Instructions for the 5304-SIMPLE
- Information for completing Article VI (Procedures for
withdrawal) (You will need to provide a memo explaining
- The financial institution's name and address.
Obviously, if an institution provides the employee
with a blank form, he/she will need to have the employer
complete it, and, the employee may well need to
remind the employer that it needs to provide the form
to all eligible employees.
CWF has created a form which covers the “alternative''
approach of the Summary Description being provided
directly to an employee.
The penalty for not furnishing the Summary Description
is $50 per day.
Special Rule for a "transfer" SIMPLE IRA.
There is also what is termed a "transfer" SIMPLE IRA.
If your institution has accepted a transfer SIMPLE IRA,
and there have been no current employer contributions,
then there is no duty to furnish the Summary Description.
However, if there is the expectation that future contributions
will be made to this transfer SIMPLE IRA, then
the institution will have the duty to furnish the Summary
Reminder of Additional Reporting Requirements
The custodian/trustee must provide each SIMPLE IRA
account holder with a statement by January 31, 2018,
showing the account balance as of December 31, 2017
(this is the same as for the traditional IRA), and include
the activity in the account during the calendar year (this
is not required for a traditional IRA). There is a $50 per
day fine for failure to furnish this statement (with a traditional
IRA, it would be a flat $50 fee).The purpose of
this requirement is so that employees may determine
their elective deferral contributions that are being contributed
to their SIMPLE-IRA on a timely basis.