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Terminating 401(k) - Establishing SIMPLE IRA


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Client wants to terminate its traditional 401(k) and establish a SIMPLE IRA yet this year. Employee salary deferral contributions have been made to date in 2001 under the existing 401(k).

It is my understanding that the SIMPLE IRA program cannot be established in 2001, since contributions have been made in this calendar year under the existing 401(k) plan, and the SIMPLE IRA cannot start any sooner that 01/01/02. However, whoever is helping the client establish the SIMPLE IRA has indicated to them that this is not the case.

Am I correct in my understanding of the SIMPLE IRA rules - or did I blink and miss a change?!

Thanks for any and all responses.

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Guest Deena

You are correct. You may not terminate one plan and switch to a SIMPLE IRA in the same plan year.

See IRS Form SIMPLE-5304 Page 4 "Instructions for the Employer"

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